■■r\.-t 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


Library 

Graduate  School  of  Business  Administration 

University  of  California 

Los  Angeles  24,  California 


ORGANIZING  FOR 
WORK 


BY 
H.  L.  GANTT 


NEW  YORK 
HARCOURT,   BRACE    AND   HOWE 

1919 


Copyright,  1919 

BY 

HARCOURT,   BRACE  AND   HOWE,  Inc. 


BOOK      MANUFACTURERS 
RAHWAY  Ne'.W     JERSEY 


Library 

HD 


PEEFACE 


The  two  greatest  forces  in  any  community  are 
the  economic  force  and  the  political  force  backed 
by  military  power.  To  develop  the  greatest 
amount  of  strength  for  the  benefit  of  the  com- 
munity, they  must  work  together,  hence  must 
be  under  one  direction. 

Germany  had  already  accomplished  this  union 
before  entering  the  war  by  having  her  political 
system  practically  take  over  the  industrial,  and 
the  Allies  rapidly  followed  suit  after  the  war 
began. 

We  also  found  soon  after  entering  the  war 
that  our  political  system  alone  was  not  ade- 
quate to  the  task  before  it,  and  supplemented 
it  by  a  food  administrator,  a  coal  administrator, 
a  war  labor  board,  a  war  industries  board,  a 
shipping  board,  and  others,  which  were  intended 
to  be  industrial,  and  as  far  as  possible  removed 
from  political  influences.  There  is  no  question 
that  they  handled  their  problems  much  more 
effectively  than  was  possible  under  strictly 
political  control. 

The  Soviet  system  is  an  attempt  to  make  the 
iU 

925868 


iv  PREFACE 

business  and  industrial  system  serve  the  com- 
munity as  a  whole,  and  in  doing  so  to  take  over 
the  functions  of  and  entirely  supplant  the  po- 
litical system.  Whether  it  can  be  made  to  work 
or  not  remains  to  be  seen.  Up  to  date  it  has 
failed,  possibly  because  the  control  has  fallen 
into  the  hands  of  people  of  such  extreme  radical 
tendencies  that  they  would  probably  wreck  any 
system. 

The  attempt  which  extreme  radicals  all  over 
the  world  are  making  to  get  control  of  both 
the  political  and  business  systems  on  the  theory 
that  they  would  make  the  industrial  and  busi- 
ness system  serve  the  community,  is  a  real 
danger  so  long  as  our  present  system  does  not 
accomplish  that  end;  and  this  danger  is  real 
irrespective  of  the  fact  that  they  have  as  yet 
nowhere  proved  their  case. 

Is  it  possible  to  make  our  present  system 
accomplish  this  end?  If  so,  there  is  no  excuse 
for  such  a  change  as  they  advocate,  for  the 
great  industrial  and  business  system  on  which 
our  modern  civilization  depends  is  essentially 
sound  at  bottom,  having  grown  up  because  of 
the  service  it  rendered.  Not  until  it  realized 
the  enormous  power  it  had  acquired  through 
making  itself  indispensable  to  the  community 
did  it  go  astray  by  making  the  community  serve 
it.     It  then  ceased   to  render   service   demo- 


PREFACE  V 

cratically,  but  demanded  autocratically  that  its 
will  be  done.  *^It  made  tools  and  weapons  of 
cities,  states,  and  empires."  Then  came  the 
great  catastrophe. 

In  order  to  resume  our  advance  toward  the 
development  of  an  unconquerable  democratic 
civilization,  we  must  purge  our  economic  sys- 
tem of  all  autocratic  practices  of  w^hatever  kind, 
and  return  to  the  democratic  principle  of  ren- 
dering service,  which  was  the  basis  of  its  won- 
derful growth. 

Unless  witJiin  a  short  time  we  can  accomplish 
this  result,  there  is  apparently  nothing  to  pre- 
vent our  following  Europe  into  the  economic 
confusion  and  welter  which  seem  to  threaten 
the  very  existence  of  its  civilization. 


CONTENTS 


PAGE 

I     The  Parting  of  the  Ways  ....  3 

II     The  Engineer  as  the  Industrial  Leader  .  16 

III  Efficiency  and  Idleness     ....  23 

IV  Production  and  Costs 28 

y    Value    of    an    Industrial    Property    De- 
pends on  its  Productive  Capacity       .  41 

VI     An  Extension  of  the  Credit  System  to 

make  It  Democratic       ....  52 

VII     Economics  of  Democracy  ....  60 

VIII     Democracy  in  Production        ...  74 

IX     Democracy  iu  the  Shop    ....  84 

X     Democracy  in  IVIanagemeut      ...  92 

XI    '*  The  Religion  of  Democracy  "      .       .  98 


THE  PARTING  OF  THE  WAYS 

Modern  civilization  is  dependent  for  its  ex- 
istence absolutely  upon  the  proper  functioning 
of  the  industrial  and  business  system.  If  the 
industrial  and  business  system  fails  to  function 
properly  in  any  important  particular,  such,  for 
instance,  as  transportation,  or  the  mining  of 
coal,  the  large  cities  will  in  a  short  time  run 
short  of  food,  and  industry  throughout  the 
country  will  be  brought  to  a  standstill  for  lack 
of  power. 

It  is  thus  clearly  seen  that  the  maintenance 
of  our  modern  civilization  is  dependent  abso- 
lutely upon  the  service  it  gets  from  the  in- 
dustrial and  business  system. 
.  This  system  as  developed  throughout  the 
world  had  its  origin  in  the  service  it  could  and 
did  render  the  community  in  which  it  originated. 
With  the  rise  of  a  better  technology  it  was 
found  that  larger  industrial  aggregations  could 
render  better  and  more  effective  service  than 
the  original  smaller  ones,  hence  the  smaller 
ones  gradually  disappeared  leaving  the  field  to 
those  that  could  give  the  better  service. 


4  ORGANIZING  FOR  WORK 

Such  was  tlie  normal  and  natural  growth  of 
business  and  industry  which  obtained  its  profits 
because  of  its  superior  service.  Toward  the 
latter  part  of  the  nineteenth  century  it  was 
discovered  that  a  relatively  small  number  of 
factories,  or  industrial  units,  had  replaced  the 
numerous  mechanics  with  their  little  shops,  such 
as  the  village  shoemaker  and  the  village  wheel- 
wright, who  made  shoes  and  wagons  for  the 
community,  and  that  the  community  at  large 
was  dependent  upon  the  relatively  smaller 
number  of  larger  establishments  in  each  in- 
dustry. 

Under  these  conditions  it  was  but  natural 
that  a  new  class  of  business  man  should  arise 
who  realized  that  if  all  the  plants  in  any  in- 
dustry were  combined  under  one  control,  the 
community  would  have  to  accept  such  service 
as  it  was  willing  to  offer,  and  pay  the  price 
which  it  demanded.  In  other  words,  it  was 
clearly  realized  that  if  such  combinations  could 
be  made  to  cover  a  large  enough  field,  they 
would  no  longer  need  to  serve  the  community 
but  could  force  the  community  to  do  their  bid- 
ding. The  Sherman  Anti-Trust  Law  was  the 
first  attempt  to  curb  this  tendency.  It  was, 
however,  successful  only  to  a  very  limited  ex- 
lent,  for  the  idea  that  the  profits  of  a  business 
were  justified  only  on  account  of  the  service 


THE  PARTING  OF  THE  WAYS  5 

it  rendered  was  rapidly  giving  way  to  one  in 
wliich  profits  took  the  first  place  and  service 
the  second.  This  idea  has  grown  so  rapidly 
and  has  become  so  firmly  imbedded  in  the  mind 
of  the  business  man  of  today,  that  it  is  incon- 
ceivable to  many  leaders  of  big  business  that  it 
is  possible  to  operate  a  business  system  on  the 
fines  along  which  our  present  system  grew  up; 
namely,  that  its  first  aim  should  be  to  render 
ser\dce. 

It  is  this  conflict  of  ideals  which  is  the  source 
of  the  confusion  into  which  the  world  now  seems 
to  be  driving  headlong.  The  community  needs 
service  first,  regardless  of  who  gets  the  profits, 
because  its  life  depends  upon  the  service  it 
gets.  The  business  man  says  profits  are  more 
important  to  him  than  the  service  he  renders; 
that  the  wheels  of  business  shall  not  turn, 
whether  the  community  needs  the  service  or 
not,  unless  he  can  have  his  measure  of  profit. 
He  has  forgotten  that  his  business  system  had 
its  foundation  in  service,  and  as  far  as  the 
community  is  concerned  has  no  reason  for  ex- 
istence except  the  service  it  can  render.  A 
clash  between  these  two  ideals  will  ultimately 
bring  a  deadlock  between  the  business  system 
and  the  community.  The  ^^laissez  faire" 
process  in  which  we  all  seem  to  have  so  much 
faith,  does  not  promise  any  other  result,  for 


6  ORGANIZING  FOR  WORK 

there  is  no  doubt  that  industrial  and  social 
unrest  is  distinctly  on  the  increase  throughout 
the  country. 

I  say,  therefore,  we  have  come  to  the  Parting 
of  the  Wai/s,  for  we  must  not  drift  on  indefi- 
nitely toward  an  economic  catastrophe  such  as 
Europe  exhibits  to  us.  We  probably  have 
abundant  time  to  revise  our  methods  and  stave 
off  such  a  catastrophe  if  those  in  control  of 
industry  will  recognize  the  seriousness  of  the 
situation  and  promptly  present  a  positive  pro- 
gram which  definitely  recognizes  the  responsi- 
bility of  the  industrial  and  business  system  to 
render  such  service  as  the  community  needs. 
The  extreme  radicals  have  always  had  a  clear 
vision  of  the  desirability  of  accomplishing  this 
end,  but  they  have  always  fallen  short  in  the 
production  of  a  mechanism  that  would  enable 
them  to  materialize  their  vision. 

American  workmen  will  prefer  to  follow  a 
definite  mechanism,  which  they  comprehend, 
rather  than  to  take  the  chance  of  accomplish- 
ing the  same  end  by  the  methods  advocated  by 
extremists.  In  Russia  and  throughout  eastern 
Europe,  the  community  through  the  Soviet  form 
of  government  is  attempting  to  take  over  the 
business  system  in  its  effort  to  secure  the 
service  it  needs.  Their  methods  seem  to  us 
crude,  and  to  violate  our  ideas  of  justice;  but 


THE  PARTING  OF  THE  WAYS  7 

in  Russia  they  replaced  a  business  system  which 
was  rotten  beyond  anything  we  can  imagine. 
It  would  not  require  a  very  perfect  system  to 
be  better  than  what  they  had,  for  the  dealings 
of  our  manufacturers  with  the  Russian  business 
agents  during  the  war  indicated  that  graft  was 
almost  the  controlling  factor  in  all  deals.  The 
Soviet  government  is  not  necessarily  Bolshe- 
vistic nor  Socialistic,  nor  is  it  political  in  the 
ordinary  sense,  but  industrial.  It  is  the  first 
attempt  to  found  a  government  on  industrial- 
ism. Whether  it  will  be  ultimately  successful 
or  not,  remains  to  be  seen.  While  the  move- 
ment is  going  through  its  initial  stages,  how- 
ever, it  is  unquestionably  working  great  hard- 
ships, which  are  enormously  aggravated  by  the 
fact  that  it  has  fallen  under  the  control  of  the 
extreme  radicals.  Would  it  not  be  better  for 
our  business  men  to  return  to  the  ideals  upon 
which  their  system  was  founded  and  upon  which 
it  grew  to  such  strength;  namely,  that  reward 
should  be  dependent  solely  upon  the  service 
rendered,  rather  than  to  risk  any  such  attempt 
on  the  part  of  the  workmen  in  this  country,  even 
if  we  could  keep  it  clear  of  extreme  radicals, 
which  is  not  likely?  We  all  realize  that  any 
reward  or  profit  that  business  arbitrarily  takes, 
over  and  above  that  to  which  it  is  justly  entitled 
for  service  rendered,  is  just  as  much  the  exer- 


8  ORGANIZING  FOR  WORK 

else  of  autocratic  power  and  a  menace  to  the  in- 
dustrial peace  of  the  world,  as  the  autocratic 
military  poiver  of  the  Kaiser  ivas  a  menace  to 
international  peace.  This  applies  to  Bolshe- 
vists as  ivell  as  to  Bankers. 

I  am  not  suggesting  anything  new,  when  I 
say  reward  must  be  based  on  service  rendered, 
but  am  simply  proposing  that  we  go  back  to 
the  first  principles,  which  still  exist  in  many 
rural  communities  where  the  newer  idea  of 
big  business  has  not  yet  penetrated.  Unques- 
tionably many  leading  business  men  recognize 
this  general  principle  and  successfully  operate 
their  business  accordingly.  Many  others  would 
like  to  go  back  to  it,  if  they  saw  how  such  a 
move  could  be  accomplished. 

Under  stress  of  war,  when  it  was  clearly  seen 
that  a  business  and  "industrial  system  run 
primarily  for  profits  could  not  produce  the  war 
gear  needed,  we  promptly  adopted  a  method  of 
finance  which  was  new  to  us.  The  Federal  Gov- 
ernment took  over  the  financing  of  such  corpora- 
tions as  were  needed  to  furnish  the  munitions 
of  war.  The  financing  power  did  not  expect 
any  profit  from  these  organizations,  but  at- 
tempted to  run  them  in  such  a  manner  as  to 
deliver  the  greatest  possible  amount  of  goods. 

The  best  known  of  these  is  the  Emergency 
Fleet  Corporation.     It  is  not  surprising  that 


THE  PARTING  OF  THE  WAYS  9 

such  a  large  corporation  developed  in  such 
great  haste  should  have  been  inefficient  in  its 
operating  methods,  but  there  are  reasons  to 
believe  that  it  will,  in  the  long  run,  prove  to 
have  handled  its  business  better  than  similar 
undertakings  that  were  handled  directly- 
through  the  Washington  bureaus.  It  gave  us 
a  concrete  example  of  how  to  build  a  Public 
Service  corporation,  the  fundamental  fact  con- 
cerning which  is  that  it  must  be  financed  hy 
public  money.  That  it  has  not  been  more  suc- 
cessful is  due,  not  to  the  methods  of  its  financ- 
ing, but  to  the  method  of  its  operation.  The 
sole  object  of  the  Fleet  Corporation  was  to 
produce  ships,  but  there  has  never  been  among 
the  higher  officers  of  the  Corporation  a  single 
person,  who,  during  the  past  twenty  years,  has 
made  a  record  in  production.  They  have  all 
without  exception  been  men  of  the  ''business*' 
type  of  mind  who  have  made  their  success 
through  financiering,  buying,  selling,  etc.  If 
the  higher  officers  of  the  Fleet  Corporation  had 
been  men  who  understood  modem  production 
methods,  and  had  in  the  past  been  successful  in 
getting  results  through  their  use,  it  is  probable 
that  the  Corporation  would  have  been  highly 
successful,  and  would  have  given  us  a  good 
example  of  how  to  build  an  effective  Public 
Service  corporation. 


10  ORGANIZING  FOR  WORK 

Mr.  William  B.  Colver,  Chairman  of  the  Fed- 
eral Trade  Commission,  in  the  summer  of  1917, 
explained  how  we  might  have  a  Public  Service 
corporation  for  the  distribution  of  coal.  In 
such  a  corporation  as  Mr.  Colver  outlined,  there 
would  be  good  pay  for  all  who  rendered  good 
service,  but  no  "profit.^'  Of  course,  all  those 
who  are  now  making  profits  over  and  above  the 
proper  reward  for  service  rendered  in  the  dis- 
tribution of  coal,  opposed  Mr.  Colver 's  plan, 
which  was  that  a  corporation,  financed  by  the 
Federal  Government,  should  buy  at  the  mouth 
of  each  mine  such  coal  as  it  needed,  at  a  fair 
price  based  on  the  cost  of  operating  that  mine ; 
that  this  corporation  should  distribute  to  the 
community  the  coal  at  an  average  price,  in- 
cluding the  cost  of  distribution.  We  see  no 
reason  why  such  a  corporation  should  not  have 
solved  the  coal  problem,  and  furnished  us  with 
an  example  of  how  to  solve  other  similar 
problems.  We  need  such  information  badly, 
for  we  are  rapidly  coming  to  a  point  where  we 
realize  that  disagreements  between  employer 
and  employee  as  to  hoiv  the  profits  shall  he 
shared  can  no  longer  he  allowed  to  work  hard- 
ship to  the  community. 

The  chaotic  condition  into  which  Europe  is 
rapidly  drifting  by  the  failure  of  the  present 
industrial  and  financial  system,  emphasizes  the 


THE  PARTING  OF  THE  WAYS  11" 

fact  that  in  a  civilization  like  ours  the  problems 
of  peace  may  be  quite  as  serious  as  the  prob- 
lems of  war,  and  the  emergencies  created  by 
them  therefore  justify  the  same  kind  of  action 
on  the  part  of  the  government  as  was  justified 
by  war. 

Before  proper  action  can  be  taken  in  this 
matter  it  must  be  clearly  recognized  that  today 
economic  conditions  have  far  more  power  for 
good  or  for  evil  than  political  theories.  This  is 
becoming  so  evident  in  Europe  that  it  is  im- 
possible to  fail  much  longer  to  recognize  it  here. 
The  revolutions  which  have  occurred  in  Europe 
and  the  agitation  which  seems  about  to  create 
other  revolutions,  are  far  more  economic  than 
political,  and  hence  can  be  offset  only  by  eco- 
nomic methods. 

The  Labor  Unions  of  Great  Britain,  and  the 
Soviet  System  of  Russia,  both  aim,  by  different 
methods,  to  render  service  to  the  community, 
but  whether  they  will  do  it  effectively  or  not  is 
uncertain,  for  they  are  revolutionary,  and  a 
revolution  is  a  dangerous  experiment,  the  result 
of  which  cannot  be  foreseen.  The  desired  result 
can  be  obtained  without  a  revolution  and  by 
methods  with  which  we  are  already  familiar, 
if  we  will  only  establish  real  public  service 
corporations  to  handle  problems  which  are  of 
most  importance  to  the  community,  and  realize 


12  ORGANIZING  FOR  WORK 

that  capital  like  labor  is  entitled  only  to  the 
reward  it  earns. 

Inasmuch  as  the  profits  in  any  corporation 
go  to  those  who  finance  that  corporation,  the 
only  guarantee  that  a  corporation  is  a  real 
public  service  corporation  is  that  it  is  financed 
by  public  money.  If  it  is  so  financed  all  the 
profits  go  to  the  community,  and  if  service  is 
more  important  than  profits,  it  is  always  pos- 
sible to  get  a  maximum  service  by  eliminating 
profits. 

This  is  the  basis  of  the  Emergency  Fleet 
Oorporation,  and  numerous  other  war  corpora- 
tions, which  rendered  such  public  service  as 
it  was  impossible  to  get  from  any  private  corpo- 
rations. Eealizing  that  on  the  return  of  peace 
many  private  corporations  feel  that  they  have 
no  longer  such  social  responsibilities  as  they 
cheerfully  accepted  during  the  war,  it  would 
seem  that  real  public  service  corporations  would 
be  of  the  greatest  possible  advantage  in  the 
industrial  and  business  reorganization  that  is 
before  us. 

We  have  in  this  country  a  little  time  to  think, 
because  economic  conditions  here  are  not  as 
acute  as  they  are  in  Europe,  and  because  of  the 
greater  prosperity  of  our  country.  But  we 
must  recognize  the  fact  that  our  great  compli- 
cated system  of  modern  civilization,  whose  very 


THE  PARTING  OF  THE  WAYS  13 

life  depends  upon  the  proper  functioning  of  the 
business  and  industrial  system,  cannot  be  sup- 
ported very  much  longer  unless  the  business 
and  industrial  system  devotes  its  energies  as  a 
primary  object  to  rendering  the  service  neces- 
sary to  support  it.  We  have  no  hesitation  in 
saying  that  the  workmen  cannot  continue  to  get 
high  wages  unless  they  do  a  big  day^s  work.  Is 
it  not  an  equally  self-evident  fact  that  the  busi- 
ness man  cannot  continue  to  get  big  rewards 
unless  he  renders  a  corresponding  amount  of 
service?  Apparently  the  similarity  of  these 
two  propositions  has  not  clearly  da^\^led  upon 
the  man  with  the  financial  type  of  mind,  for  the 
reason,  perhaps,  that  he  has  never  compared 
them. 

Such  a  change  would  produce  hardships  only 
for  those  who  are  getting  the  rewards  they  are 
not  earning.  It  would  greatly  benefit  those  who 
are  actually  doing  the  work. 

In  order  that  we  may  get  a  clear  conception 
of  what  such  a  condition  would  mean,  let  us 
imagine  two  nations  as  nearly  identical  as  we 
can  picture  them,  one  of  which  had  a  business 
system  which  was  based  upon  and  supported 
by  the  service  it  rendered  to  the  community. 
Let  us  imagine  that  the  other  nation,  having  the 
same  degree  of  civilization,  had  a  business 
system  run  primarily  to  give  profits  to  those 


14  ORGANIZING  FOR  WORK 

who  controlled  that  system,  which  rendered 
service  when  such  service  increased  its  profits, 
but  failed  to  render  service  when  such  service 
did  not  make  for  profits.  To  make  the  com- 
parison more  exact,  let  us  further  imagine  a 
large  portion  of  the  most  capable  men  of  the 
latter  community  engaged  continually  in  a  pull 
and  haul,  one  against  the  other,  to  secure  the 
largest  possible  profits.  Then  let  us  ask  our- 
selves in  what  relative  state  of  economic  de- 
velopment these  two  nations  would  find  them- 
selves at  the  end  of  ten  years?  It  is  not  neces- 
sary to  answer  this  question. 

I  say  again,  then,  we  have  come  to  the  Parting 
of  the  Ways,  for  a  nation  whose  business  system 
is  based  on  service  will  in  a  short  time  show 
such  advancement  over  one  whose  business  sys- 
tem is  operated  primarily  with  the  object  of 
securing  the  greatest  possible  profits  for  the 
investing  class,  that  the  latter  nation  will  not 
be  long  in  the  running. 

America  holds  a  unique  place  in  the  world 
and  by  its  traditions  is  the  logical  nation  to  con- 
tinue to  develop  its  business  system  on  the 
line  of  service.  What  is  happening  in  Europe 
should  hasten  our  decision  to  take  this  step,  for 
the  business  system  of  this  country  is  identical 
with  the  business  system  of  Europe,  which,  if 
we  are  to  believe  the  reports,  is  so  endangered 


THE  PARTING  OF  THE  WAYS  15 

by  the  crude  efforts  of  the  So\^et  to  make  busi- 
ness serve  the  community. 

The  lesson  is  this:  the  hicsiness  system  must 
accept  its  social  responsihilify  and  devote  itself 
primarily  to  service,  or  the  community  ivill  ulti- 
mately make  the  attempt  to  take  it  over  in 
order  to  operate  it  in  its  own  interest. 

The  spectacle  of  the  attempt  to  accomplish 
this  result  in  ea^ern  Europe  is  certainly  not  so 
attractive  as  to  make  us  desire  to  try  the  same 
experiment  here.  Hence,  we  should  act,  and 
act  quickly,  on  the  former  proposition. 


II 


THE  ENGINEER  AS  THE  INDUSTRIAL 
LEADER 

The  principles  explained  in  the  preceding 
chapter  may  seem  to  be  sufficiently  clear  and 
simple  to  appeal  to  almost  any  enlightened 
person,  and  give  him  the  desire  to  carry  them 
out.  The  desire  to  put  them  in  operation,  how- 
ever, is  not  enough.  He  must  have  at  least 
some  inkling  of  the  methods  by  which  their 
application  can  be  made.  He  must  understand 
the  forces  with  which  he  will  have  to  contend 
in  introducing  the  newer  methods;  the  argu- 
ments that  will  be  brought  up  against  them,  and 
the  obstacles  that  will  be  put  in  his  way  by 
those  who  are  perfectly  well  satisfied  to  go  on 
as  they  are,  in  spite  of  the  fact  that  a  change  is 
seen  to  be  absolutely  necessary  in  the  long  run. 
In  the  following  chapters  we  shall  try  to  give 
a  picture  of  how  business  and  industry  are  con- 
ducted, and  some  explanation  of  the  forces  con- 
trolling each.  Most  of  our  business  and  in- 
dustrial troubles  arise  from  the  fact  that  the 
controlling  factors  are  not  apparent  to  the 
public  in  general  and  can  be  disclosed  only  by  a 

16 


INDUSTRIAL  ENGINEER  17 

thorough  and  exhaustive  study  of  what  is  taking 
place. 

Following  this  general  exposition  of  the  sub- 
ject, we  shall  show  a  system  of  progress  charts 
which  bear  the  same  relation  to  the  statistical 
reports  which  are  so  common  that  a  mo\dng 
picture  film  bears  to  a  photograph.  This  chart 
system  has  been  in  use  only  a  few  years,  but 
it  is  so  simple  that  it  is  readily  understood  by 
the  workman  and  employer,  and  so  comprehen- 
sive that  one  intelligent  workman  made  the 
remark,  ''If  we  chart  everything  we  are  doing 
that  way,  anybody  can  run  the  shop.''  While 
we  are  hardly  prepared  to  agree  with  this 
opinion,  we  are  entirely  satisfied  that  if  the 
facts  about  a  business  can  be  presented  in  a 
compact  and  comprehensive  manner,  it  will  be 
found  possible  to  run  any  business  much  more 
effectively  than  has  been  the  custom  in  the  past. 

We  wish  to  emphasize  the  practicality  of  our 
methods,  because  we  have  been  accused  of 
preaching  altruism  in  business,  which  our 
critics  say  will  not  work.  We  know  altruism 
\vill  not  work  and  absolutely  repudiate  the  idea 
that  our  methods  are  altruistic;  as  a  matter  of 
fact,  we  believe  we  should  get  full  reward  for 
service  rendered.  Moreover,  we  believe  that 
if  everybody  got  full  reward  for  service  ren- 
dered there  would  not  be  so  many  ''profits'' 


18  ORGANIZING  FOR  WORK 

for  the  employer  and  employee  to  quarrel  over, 
so  often  to  the  detriment  of  the  public. 

With  this  introduction,  we  shall  try  to  make 
clear  what  has  been  happening  in  the  industrial 
and  business  world,  and  draw  our  conclusions 
as  we  go  along. 

When  the  war  broke  out,  many  of  our  leading 
business  men  who  had  accumulated  wealth 
through  the  accepted  business  methods,  which 
had  to  do  primarily  with  buying,  selling,  financ- 
ing, etc.,  went  to  Washington  and  offered  their 
services  at  a  dollar  a  year.  They  did  this  with 
the  best  intentions,  believing  that  the  business 
methods  which  had  brought  them  success  in  the 
past  were  the  ones  needed  in  time  of  war.  They 
soon  found  that  the  government  had  taken  over 
all  financial  operations ;  that  there  was  no  sell- 
ing to  be  done,  and  that  the  problem  quickly 
reduced  itself  to  one  of  production,  in  which 
many  of  them  had  had  no  experience.  There 
were,  of  course,  many  marked  exceptions,  for 
some  grasped  the  problem  at  once  and  did 
wonderful  work.  As  a  general  rule,  however, 
this  was  not  the  case,  for- it  takes  a  very  capable 
man  to  grasp  quickly  the  essentials  of  a  big 
problem  that  is  entirely  new  to  him.  Hence,  as 
a  rule,  they  adhered  strictly  to  the  methods  they 
had  been  accustomed  to,  and  called  to  assist 
them  great  numbers  of  accountants  and  stat- 


INDUSTRIAL  ENGINEER  19 

isticians  (all  static),  both  groups  thoroughly 
convinced  that  record-keeping  was  the  main  aim 
of  business ;  and  while  the  army  was  calling  for 
ships  and  shells,  trucks  and  tanks,  these  men 
busied  themselves  \\ith  figures,  piling  up  statis- 
tics, apparently  quite  satisfied  that  they  were 
doing  their  part.  In  many  cases  these  statis- 
ticians did  not  differentiate  between  that  w^hich 
is  interesting  and  that  which  is  important.  In 
but  few  cases  did  they  realize  that  from  the 
standpoint  of  production,  yesterday's  record  is 
valuable  only  as  a  guide  for  tomorrow.  They 
did  not  understand  that  it  is  only  the  man  who 
knows  what  to  do  and  how  to  do  it  that  can 
direct  the  accumulation  of  the  facts  he  needs 
for  his  guidance.  In  too  many  cases,  such  men 
had  been  left  behind  to  run  the  factories,  while 
their  superiors,  who  had  had  no  experience  in 
production,  undertook  for  the  government 
the  most  important  job  of  production  we 
have  ever  had,  depending  almost  entirely 
upon  accountants  and  statisticians  for  guid- 
ance. The  results  of  their  labors  are  now 
history,  a  knowledge  of  w^hich  will  soon  be  the 
common  property  of  all.  In  spite  of  this  handi- 
cap, we  did  much  good  work. 

There  is  no  question  that  both  our  army  and 
navy  have  made  good  to  a  degree  which  none 
of  our  allies  anticipated,  but  it  is  also  true  that 


20  ORGANIZING  FOR  WORK 

if  we  had  not  had  economic  assistance  from  our 
allies,  the  results  they  hav,e  obtained  would  have 
been  impossible.  As  a  matter  of  fact,  it  is  well 
known  that  our  industrial  system  has  not 
measured  up  as  we  had  expected.  To  substanti- 
ate this  w^e  have  only  to  mention  airplanes, 
ships,  field  guns,  and  shells.  The  reason  for  its 
falling  short  is  undoubtedly  that  the  men  direct- 
ing it  had  been  trained  in  a  business  system 
operated  for  profits,  and  did  not  understand  one 
operated  solely  for  production.  This  is  no  criti- 
cism of  the  men  as  individuals;  they  simply 
did  not  know  the  job,  and,  what  is  w^orse,  they 
did  not  know  they  did  not  know  it. 

Inasmuch  as  our  economic  strength  in  the 
future  will  be  based  on  production,  we  must 
modify  our  system  as  rapidly  as  possible,  with 
the  end  in  view  of  putting  producers  in  charge. 
To  do  this,  opinions  must  give  place  to  facts, 
and  words  to  deeds,  and  the  engineer,  who  is 
a  man  of  few  opinions  and  many  facts,  few 
words  and  many  deeds,  should  be  accorded  the 
leadership  which  is  his  proper  place  in  our 
economic  system. 

It  must  be  remembered,  however,  that  the  en- 
gineer has  two  distinct  functions.  One  is  to 
design  and  build  his  machinery;  the  second  is 
to  operate  it.  In  the  past  he  has  given  more 
attention  to  the  former  function  than  to  the 


INDUSTRIAL  ENGINEER  21 

latter.  At  first  this  was  but  a  natural  and 
necessar^^  condition,  for  the  various  engineer- 
ing structures  were  comparatively  few  and  were 
operated  in  a  measure  simply  and  independ- 
ently. Now,  however,  with  the  multiplicity  of 
machines  of  all  kinds,  the  operation  of  one  is 
many  times  intimately  dependent  upon  the 
operation  of  another,  even  in  one  factory.  In 
addition  to  this  the  operation  of  one  factory  is 
always  dependent  upon  the  successful  operation 
of  a  number  of  others.  Because  this  inter- 
operation  is  necessary  to  render  service  or  pro- 
duce results,  the  complexity  of  the  operating 
problem  has  greatly  increased,  for  the  operation 
of  a  large  number  of  factories  in  harmony 
presents  much  the  same  problem  as  the  har- 
monious operation  of  the  machines  in  one  fac- 
tory. It  is  only,  however,  where  the  factories 
have  been  combined  under  one  management  that 
any  direct  attempt  at  this  kind  of  control  has 
been  made.  To  be  sure,  the  relation  between 
the  demand  for  and  supply  of  the  product,  sup- 
plemented by  a  desire  to  get  the  greatest  pos- 
sible profit,  has  resulted  in  a  sort  of  control, 
which  has  usually  been  based  more  on  opinion 
than  facts,  and  generally  exercised  to  secure  the 
greatest  possible  profits  rather  than  to  render 
the  greatest  service. 
Emphasizing  again  the  self-evident  fact  that 


22  ORGANIZING  FOR  WORK 

great  reward  can  only  be  continuously  got  by 
corresponding  service,  and  that  the  maximum 
service  can  be  rendered  only  when  actions  are 
based  on  knowledge,  we  realize  that  the  logical 
director  for  such  work  is  the  engineer,  who  not 
only  has  a  basic  knowledge  of  the  work,  but 
whose  training  and  experience  lead  him  to  rely 
only  upon  facts.  So  far,  however,  there  is  not 
in  general  use  any  mechanism  which  will  en- 
able the  engineer  to  visualize  at  once  the  large 
number  of  facts  that  must  be  comprehended  in 
order  that  he  may  handle  effectively  the  mana- 
gerial problems  that  our  modern  industrial  sys- 
tem is  constantly  presenting.  It  is  one  object 
of  this  book  to  lay  before  the  public  the  progress 
we  have  made  in  visualizing  the  problems  and 
the  available  information  needed  for  their 
solution. 


ni 

EFFICIENCY  AND  IDLENESS 

What  we  accomplished  in  our  preparation  for 
war  and  in  getting  men  to  the  front  surprised 
ourselves,  and  apparently  satisfied  our  allies. 
It  was  accomplished  by  the  splendid  energy  and 
tremendous  resources  of  the  American  people, 
but  nobody  pretends  that  we  showed  any  high 
degree  of  efficiency  in  doing  the  work.  Our 
expenses  were  enormous,  and  we  have  recon- 
ciled ourselves  to  their  magnitude  by  saying 
over  and  over  again  that  nothing  counted  ex- 
cept winning  the  war,  which  in  the  last  analysis 
is  true ;  but  it  is  also  true  that  excessive  expense 
not  only  did  not  help  us  to  win  the  war,  but 
rather  hindered  us  in  accomplishing  this  result. 
Our  fumbling  in  war  preparation  seems  to 
indicate  that  the  great  campaign  for  efficiency, 
which  has  been  waged  so  assiduously  in  this 
country  for  the  past  twenty  years,  has  not  ac- 
complished for  us  all  we  had  led  ourselves  to 
believe.  That  we  have  increased  individual  ef- 
ficiency and  profit-making  efficiency,  and  per- 
haps other  kinds  of  efficiency,  is  not  to  be  denied. 
That  we  have  attained  a  high  degree  of  national 

23 


24  ORGANIZING  FOR  WORK 

efficiency  or  a  high  degree  of  efficiency  in  the 
production  of  goods,  is  nowhere  indicated.  It 
took  the  shock  of  a  great  war  to  arouse  us  to 
the  realization  that  our  great  prosperity  was 
due  to  something  other  than  our  productive  ef- 
ficiency. 

Yet  surely  the  long  campaign  for  efficiency 
has  been  honestly  and  seriously  waged.  Why, 
then,  have  our  results  been  so  meager?  The 
answer  is  simple  enough  and  plain.  The  aim 
of  our  efficiency  has  not  been  to  produce  goods, 
but  to  harvest  dollars.  If  we  could  harvest 
more  dollars  by  producing  fewer  goods,  we 
produced  the  fewer  goods.  If  it  happened  that 
we  could  harvest  more  dollars  by  producing 
more  goods,  we  made  an  attempt  to  produce 
more  goods:  but  the  production  of  goods  was 
always  secondary  to  the  securing  of  dollars. 

In  the  great  emergency  created  by  the  war, 
our  need  was  not  for  dollars  but  for  goods,  and 
people  who  had  been  trained  for  the  seeking 
of  dollars  were  in  most  cases  not  at  all  fitted 
for  the  producing  of  goods.  Those  who  had 
been  most  successful  in  acquiring  dollars  were, 
however,  the  ones  best  known  as  business  men, 
and  when  it  was  thought  we  needed  a  business 
administration,  such  people,  with  the  best  in- 
tentions in  the  world,  offered  their  services  to 
the  Federal  Government,  many  at  a  great  sacri- 


EFFICIENCY  AND  IDLENESS  25 

fice  of  their  own  interests.  They  found,  how- 
ever, that  for  w^ar  w^e  needed  goods,  and  that 
dollars  w^ere  only  the  means  to  that  end.  Then 
they  found  that  unless  people  knew  how  to 
produce  the  goods,  dollars  w^re  ineffective. 

Another  phase  of  the  efficiency  movement  w^ith 
which  we  are  all  so  familiar,  w^as  the  attempt 
to  increase  the  efficiency  of  the  w^orker,  and  to 
ignore  entirely  the  idler,  because  the  system  of 
cost-keeping  generally  in  vogue  made  that  seem 
the  most  profitable  thing  to  do.  The  case  was 
worse  than  this,  for  not  only  did  the  system 
ignore  the  idler,  but  it  eliminated  the  inefficient, 
absolutely  ignoring  the  fact  that  both  the  in- 
efficient and  the  idle  w^ere  going  to  continue  to 
live  and  be  supported,  directly  or  indirectly,  by 
the  w^orkers. 

The  war  waked  us  up  to  the  fact  that  the 
world  was  running  short  of  the  necessities  of 
life,  and  that  the  product  of  even  the  most 
inefficient  was  some  help.  The  scheme  for  the 
selection  of  the  efficient,  of  w^hich  much  had 
been  made,  w^as  now  found  to  need  supplement- 
irig  by  one  for  forcing  the  idler  to  work  and 
training  the  inefficient. 

The  great  difficulty  of  installing  such  a  sys- 
tem w-as  that  the  cost-keeping  methods  in  gen- 
eral vogue  indicated  that  training  methods  were 
not  profitable,  for  trainers  were  classed  as  non- 


26  ORGANIZING  FOR  WORK 

producers.  In  spite  of  this  fact,  however,  the 
war  emergency  forced  us  to  adopt  them,  and 
the  results  were  beneficial.  The  inevitable  de- 
duction is  that  the  cost-keeping  methods  in 
general  vogue  are  fundamentally  wrong,  and 
that  we  shall  continue  to  suffer  from  ineJBficiency 
until  they  are  corrected.  The  great  error  in 
them  is  the  fact  that  they  absolutely  ignore  the 
expense  of  idleness.  As  a  matter  of  fact,  it 
costs  almost  as  much  to  be  idle  as  it  does  to 
work.  This  is  true  whether  we  consider  men 
or  machines,  or,  in  other  words,  labor  or  capital. 

This  leads  us  at  once  to  two  natural  ques- 
tions : 

What  is  our  expense  for  idle  labor? 

What  is  our  expense  for  idle  capital? 

Manufacturing  concerns  pretty  generally 
eliminate  idle  labor  as  completely  as  they  can 
(many  times  by  discharging  workmen  who  could 
be  profitably  used  if  work  were  planned  for 
them). 

They  cannot  get  rid  of  idle  capital  so  easily, 
for  it  is  tied  up  in  machines  that  cannot  be  sold. 
The  only  possible  way  to  eliminate  idle  capital, 
then,  is  to  put  it  to  work.  The  first  step  toward 
putting  it  to  work  is  to  find  out  why  it  is  idle. 
As  soon  as  this  is  done,  means  for  putting  it  to 
work  begin  to  suggest  themselves.  Our  cost- 
keeping  system,  to  meet  the  present  and  future 


EFFICIENCY  AND  IDLENESS  27 

emergency,  must  not  content  itself  with  charg- 
ing to  the  product  all  expenses,  but  must  charge 
to  the  product  only  that  expense  that  helped  to 
produce  it,  and  must  show  the  expenses  that  did 
not  produce  anything,  and  their  causes.  If  this 
fundamental  change  is  made  in  our  cost-keeping 
methods,  our  viewpoint  on  the  subject  of  pro- 
duction changes,  with  the  result  that  we  devote 
our  attention  first  to  the  elimination  of  idleness, 
both  of  capital  and  labor. 


IV 
PRODUCTION  AND  COSTS 

Manufacturers  in  general  recognize  the  vital 
importance  of  a  knowledge  of  the  cost  of  their 
product,  yet  but  few  of  them  have  a  cost  system 
on  which  they  are  willing  to  rely  under  all  con- 
ditions. 

Wliile  it  is  possible  to  get  quite  accurately  the 
amount  of  material  and  labor  used  directly  in 
the  production  of  an  article,  and  several  systems 
have  been  devised  which  accomplish  this  result, 
there  does  not  yet  seem  to  be  in  general  use 
any  system  of  distributing  that  portion  of  the 
expense  known  variously  as  indirect  expense, 
burden,  or  overhead,  in  such  a  manner  as  to 
make  us  have  any  real  confidence  that  it  has 
been  done  properly. 

There  are  in  common  use  several  methods 
of  distributing  this  expense.  One  is  to  dis- 
tribute to  the  product  the  total  indirect  ex- 
pense, including  interest,  taxes,  insurance,  etc., 
according  to  the  direct  labor.  Another  is  to 
distribute  a  portion  of  this  expense  according 
to  direct  labor,  and  a  portion  to  machine  hours. 


PRODUCTION  AND  COSTS  29 

Other  methods  distribute  a  certain  amount  of 
this  expense  on  the  material  used,  etc.  Most  of 
these  methods  contemplate  the  distribution  of 
all  of  the  indirect  expense  of  the  manufacturing 
plant,  however  much  it  may  be,  on  the  output 
produced,  no  matter  how  small  it  is. 

If  the  factory  is  running  at  its  full,  or  normal, 
capacity,  this  item  of  indirect  expense  per  unit 
of  product  is  usually  small.  If  the  factory  is 
running  at  only  a  fraction  of  its  capacity,  say 
one-half,  and  turning  out  only  one-half  of  its 
normal  product,  there  is  but  little  change  in  the 
total  amount  of  this  indirect  expense,  all  of 
which  must  now  be  distributed  over  half  as 
much  product  as  previously,  each  unit  of 
product  thereby  being  obliged  to  bear  ap- 
proximately twice  as  much  expense  as  pre- 
viously. 

When  times  are  good,  and  there  is  plenty  of 
business,  this  method  of  accounting  indicates 
that  our  costs  are  low;  but  when  times  become 
bad  and  business  is  slack,  it  indicates  high  costs 
due  to  the  increased  proportion  of  burden  each 
unit  has  to  bear.  During  good  times,  when  there 
is  a  demand  for  all  the  product  we  can  make, 
it  is  usually  sold  at  a  high  price  and  the  element 
of  cost  is  not  such  an  important  factor.  Wlien 
business  is  dull,  however,  we  cannot  get  such 
a  high  price  for  our  product,  and  the  question 


30  ORGANIZING  FOR  WORK 

of  at  how  low  a  price  we  can  afford  to  sell  the 
product  is  of  vital  importance.  Our  cost  sys- 
tems, as  generally  operated  at  present,  show 
under  such  conditions  that  our  costs  are  high 
and,  if  business  is  very  bad,  they  usually  show 
us  a  cost  far  greater  than  the  amount  we  can 
get  for  the  goods.  In  other  words,  our  present 
systems  of  cost  accounting  go  to  pieces  when 
they  are  most  needed.  This  being  the  case, 
many  have  felt  for  a  long  time  that  there  was 
something  radically  wrong  with  the  present 
theories  on  the  subject. 

As  an  illustration,  I  may  cite  a  case  which 
recently  came  to  my  attention.  A  man  found 
that  his  cost  on  a  certain  article  was  thirty 
cents.  When  he  found  that  he  could  buy  it  for 
twenty-six  cents,  he  gave  orders  to  stop  manu- 
facturing and  to  buy  it,  saying  he  did  not  under- 
stand how  his  competitor  could  sell  at  that 
price.  He  seemed  to  realize  that  there  was  a 
flaw  somewhere,  but  he  could  not  locate  it.  I 
asked  him  of  what  his  expense  consisted.  His 
reply  was,  labor  ten  cents,  material  eight  cents, 
and  overhead  twelve  cents.  I  then  asked  if  he 
was  running  his  factory  at  full  capacity,  and 
got  the  reply  that  he  was  running  it  at  less  than 
half  its  capacity,  possibly  at  one-third.  The 
next  question  was :  What  would  be  the  overhead 
on  this  article  if  the  factory  were  running  full? 


PRODUCTION  AND  COSTS  31 

The  reply  was  that  it  would  be  about  five  cents. 
I  suggested  that  in  such  a  case  the  cost  would 
be  only  twenty-three  cents.  The  possibility 
that  his  competitor  was  running  his  factory 
full  suggested  itself  at  once  as  an  explana- 
tion. 

The  next  question  that  suggested  itself  was 
how  the  twelve  cents  overhead,  which  was 
charged  to  this  article,  would  be  paid  if  the 
article  was  bought.  The  obvious  answer  was 
that  it  would  have  to  be  distributed  over  the 
product  still  being  made,  and  w^ould  thereby 
increase  its  cost.  In  such  a  case  it  would  prob- 
ably be  found  that  some  other  article  w^as  cost- 
ing more  than  it  could  be  bought  for;  and,  if 
the  same  policy  were  pursued,  the  second  article 
should  be  bought,  which  would  cause  the  re- 
maining product  to  bear  a  still  higher  expense 
rate.  If  this  policy  were  carried  to  its  logical 
conclusion,  the  manufacturer  would  be  buying 
everything  before  long,  and  be  obliged  to  give 
up  manufacturing  entirely. 

The  illustration  w^hich  I  have  cited  is  not  an 
isolated  case,  but  is  representative  of  the  prob- 
lems before  a  large  class  of  manufacturers,  who 
believe  that  all  of  the  expense,  however  large, 
must  be  carried  by  the  output  produced,  how- 
ever small.  This  theory  of  expense  distribu- 
tion indicates  a  policy  which  in  dull  times  would, 


32  ORGANIZING  FOR  WORK 

if  followed  logically,  put  many  manufacturers 
out  of  business.  In  1897  the  plant  of  which  I 
was  superintendent  was  put  out  of  business  by 
just  this  kind  of  logic.  It  never  started  up 
again. 

Fortunately  for  the  country,  American 
people  as  a  whole  will  finally  discard  theories 
which  conflict  with  common  sense;  and,  when 
their  cost  figures  indicate  an  absurd  conclusion, 
most  of  them  will  repudiate  the  figures.  A  cost 
system,  however,  which  fails  us  when  we  need 
it  most,  is  of  but  little  value  and  it  is  impera- 
tive for  us  to  devise  a  theory  of  costs  that  will 
not  fail  us. 

Most  of  the  cost  systems  in  use,  and  the 
theories  on  which  they  are  based,  have  been 
devised  by  accountants  for  the  benefit  of  finan- 
ciers, whose  aim  has  been  to  criticize  the  fac- 
tory and  to  make  it  responsible  for  all  the  short- 
comings of  the  business.  In  this  they  have  suc- 
ceeded admirably,  largely  because  the  methods 
used  are  not  so  devised  as  to  enable  the  superin- 
tendent to  present  his  side  of  the  case. 

One  of  the  prime  functions  of  cost-keeping 
is  to  enable  the  superintendent  to  know  whether 
or  not  he  is  doing  the  work  he  is  responsible 
for  as  economically  as  possible,  a  function  which 
is  ignored  in  the  majority  of  cost  systems  now 
in  general  use.     Many  accountants  who  make 


PRODUCTION  AND  COSTS  33 

an  attempt  to  show  it,  are  so  long  in  getting 
their  figures  in  shape  that  they  are  practically 
worthless  for  the  purpose  intended,  the  pos- 
sibility of  using  them  having  passed. 

In  order  to  get  a  correct  view  of  the  subject 
we  must  look  at  the  matter  from  a  different  and 
broader  standpoint.  The  following  illustration 
may  put  the  subject  in  its  true  light: 

Let  us  suppose  that  a  manufacturer  owms 
three  identical  plants,  of  an  economical  operat- 
ing size,  manufacturing  the  same  article, — one 
located  in  Albany,  one  in  Buffalo,  and  one  in 
Chicago — and  that  they  are  all  running  at  their 
normal  capacity  and  are  managed  equally  well. 
The  amount  of  indirect  expense  per  unit  of 
product  would  be  substantially  the  same  in  each 
of  these  factories,  as  would  be  the  total  cost. 
Now  suppose  business  suddenly  falls  off  to  one- 
third  of  its  pre\dous  amount  and  the  manu- 
facturer shuts  do^^^l  the  plants  in  Albany  and 
Buffalo,  and  continues  to  run  the  one  in  Chicago 
exactly  as  it  has  been  run  before.  The  product 
from  the  Chicago  plant  would  have  the  same 
cost  that  it  pre\^ously  had,  but  the  expense  of 
carrying  two  idle  factories  might  be  so  great 
as  to  take  all  the  profits  out  of  the  business ;  in 
other  words,  the  profit  made  from  the  Chicago 
plant  might  be  offset  entirely  by  the  loss  made 
by  the  Albany  and  Buffalo  plants. 


34  ORGANIZING  FOR  WORK 

If  these  plants,  instead  of  being  in  different 
cities,  were  located  in  the  same  city,  a  similar 
condition  might  also  exist  in  which  the  expense 
of  the  two  idle  plants  would  be  such  a  drain  on 
the  business  that  they  would  offset  the  profit 
made  in  the  going  plant. 

Instead  of  considering  these  three  factories 
to  be  in  different  parts  of  one  city,  they  might 
be  considered  as  being  within  the  same  yard, 
which  would  not  change  the  conditions.  Finally, 
we  might  consider  that  the  walls  between  these 
factories  were  taken  down  and  that  the  three 
factories  were  turned  into  one  plant,  the  out- 
put of  which  had  been  reduced  to  one-third  of 
its  normal  volume.  In  such  case  it  would  be 
manifestly  proper  to  charge  to  this  product 
only  one-third  of  the  indirect  expense  charged 
when  the  factory  was  running  full. 

If  the  above  argument  is  correct,  we  may 
state  the  following  general  principle:  The  in- 
direct EXPENSE  CHAEGEABLE  TO  THE  OUTPUT  OF 
A  FACTORY  SHOULD  BEAR  THE  SAME  RATIO  TO  THE 
INDIRECT  EXPENSE  NECESSARY  TO  RUN  THE  FACTORY 
AT  NORMAL  CAPACITY,  AS  THE  OUTPUT  IN  QUESTION 
BEARS  TO  THE  NORMAL  OUTPUT  OF  THE  FAC- 
TORY. 

This  theory  of  expense  distribution,  which 
was  forced  upon  us  by  the  abrupt  change  in 
conditions   brought   on  by  the  war,   explains 


PRODUCTION  AND  COSTS  35 

many  things  which  were  inexplicable  under  the 
older  theory,  and  gives  the  manufacturer  uni- 
form, or  at  least  comparable,  costs  as  long  as 
the  methods  of  manufacture  do  not  change. 

Under  this  method  of  distributing  expense 
there  will  be  a  certain  amount  of  undistributed 
expense  remaining  whenever  the  factory  runs 
below  its  normal  capacity.  A  careful  considera- 
tion of  this  item  will  show  that  it  is  not  charge- 
able to  the  product  made,  but  is  a  business  ex- 
pense incurred  on  account  of  maintaining  a  cer- 
tain portion  of  the  factory  idle,  and  chargeable 
to  profit  and  loss.  Many  manufacturers  have 
made  money  in  a  small  plant,  then  built  a  large 
plant  and  lost  money  for  years  afterward, 
\\dthout  quite  understanding  how  it  happened. 
This  method  of  figuring  affords  an  explana- 
tion and  warns  the  manufacturer  to  do  every- 
thing possible  to  increase  the  efficiency  of 
the  plant  he  has,  rather  than  to  increase  its 
size. 

This  theory  explains  why  some  of  our  large 
combinations  of  manufacturing  plants  have  not 
been  as  successful  as  was  anticipated,  and  why 
the  small  plant  is  able  to  compete  successfully 
and  make  money,  while  the  combinations  are 
only  just  holding  their  own. 

The  idea  so  prevalent  a  few  years  ago,  that 
in  the  industrial  world  money  is  the  most  power- 


36  ORGANIZING  FOR  WORK 

ful  factor,  and  that  if  we  only  had  enough 
money,  nothing  else  would  matter  very  much, 
is  beginning  to  lose  its  force,  for  it  is  becom- 
ing clear  that  the  size  of  a  business  is  not  so 
important  as  the  policy  by  which  it  is  directed. 
If  we  base  our  policy  on  the  idea  that  the  cost 
of  an  article  can  only  legitimately  include  the 
expense  necessarily  incurred  either  directly  or 
indirectly  in  producing  it,  w^e  shall  find  that 
our  costs  are  much  lower  than  we  thought,  and 
that  we  can  do  many  things  which  under  the 
old  method  of  figuring  appeared  suicidal. 

The  view  of  costs  so  largely  held,  namely,  that 
the  product  of  a  factory,  however  small,  must 
bear  the  total  expense,  how^ever  large,  is  re- 
sponsible for  much  of  the  confusion  about  costs 
and  hence  leads  to  unsound  business  poli- 
cies. 

If  we  accept  the  view  that  the  article  produced 
shall  bear  only  that  portion  of  the  indirect  ex- 
pense needed  to  produce  it,  our  costs  will  not 
only  become  lower,  but  relatively  far  more  con- 
stant, for  the  most  variable  factor  in  the  cost 
of  an  article  under  the  usual  system  of  account- 
ing has  been  the  '^overhead,"  which  has  varied 
almost  inversely  as  the  amount  of  the  product. 
This  item  becomes  substantially  constant  if  the 
*' overhead''  is  figured  on  the  normal  capacity 
of  the  plant. 


PRODUCTION  AND  COSTS  37 

Of  course  a  method  of  cost-keeping  does  not 
diminish  the  expense,  but  it  may  show  where  the 
expense  properly  belongs,  and  give  a  more  cor- 
rect understanding  of  the  business. 

In  our  illustration  of  the  three  factories,  the 
cost  in  the  Chicago  factory  remained  constant, 
but  the  expense  of  supporting  the  Buffalo  and 
Albany  factories  in  idleness  was  a  charge 
against  the  business,  and  properly  chargeable 
to  profit  and  loss.  If  we  had  loaded  this  ex- 
pense on  the  product  of  the  Chicago  factory,  the 
cost  of  the  product  would  probably  have  been 
so  great  as  to  have  prevented  our  selling  it, 
and  the  total  loss  would  have  been  greater  still. 

When  the  factories  are  distinctly  separate, 
few  people  make  such  a  mistake,  but  where  a 
single  factory  is  three  times  as  large  as  is 
needed  for  the  output,  the  error  is  frequently 
made,  with  results  that  are  just  as  misleading. 

As  a  matter  of  fact  it  seems  that  the  attempt 
to  make  a  product  bear  the  expense  of  plant  not 
needed  for  its  production  is  one  of  the  most 
serious  defects  in  our  industrial  system  today, 
and  farther  reaching  than  the  differences  be- 
tween employers  and  employees,  for  if  it  were 
removed,  most  of  the  difficulties  would  vanish. 

The  problem  that  faces  us  is  first  to  find  just 
what  plant  or  part  of  a  plant,  is  needed  to  pro- 
duce a  given  output,  and  then  to  determine  the 


38  ORGANIZING  FOR  WORK 

*^ overhead''  expense  needed  to  operate  that 
plant  or  portion  of  that  plant.  This  is  primarily 
the  work  of  the  manufacturer,  or  engineer,  and 
only  secondarily  that  of  the  accountant,  who 
must,  as  far  as  costs  are  concerned,  be  the 
servant  of  the  superintendent. 

In  the  past,  in  almost  all  cost  systems  the 
amount  of  *' overhead"  to  be  charged  to  the 
product,  when  it  did  not  include  all  the  **  over- 
head,'' was  more  or  less  a  matter  of  judgment. 
According  to  the  theory  now  presented,  it  is 
not  a  matter  of  judgment,  but  can  be  determined 
with  an  accuracy  depending  upon  the  knowledge 
the  manufacturer  has  of  the  business.  Follow- 
ing this  line  of  thought  it  should  be  possible  for 
a  manufacturer  to  calculate  just  what  plant  and 
equipment  he  ought  to  have,  and  what  the  staff 
of  officers  and  workmen  should  be  to  turn  out  a 
given  product.  If  this  can  be  correctly  done, 
the  exact  cost  of  a  product  can  be  predicted. 
Such  a  problem  cannot  be  solved  by  a  cost  ac- 
countant mthout  shop  knowledge,  but  is  pri- 
marily a  problem  for  an  engineer  whose  knowl- 
edge of  materials  and  processes  is  essential  for 
its  solution. 

In  any  attempt  to  solve  a  problem  of  this 
type,  one  of  the  most  important  functions  we 
need  a  cost  system  to  perform  is  to  keep  the 
superintendent  continually  advised  as  to  how 


PRODUCTION  AND  COSTS  39 

nearly  he  is  realizing  the  ideal  set,  and  to  point 
out  where  the  shortcomings  are. 

Many  of  us  are  accustomed  to  this  viewpoint 
when  w^e  are  treating  operations  singly,  but 
few  have  as  yet  made  an  attempt  to  consider 
that  this  idea  might  be  applied  to  a  plant  as  a 
whole,  except  w^hen  the  processes  of  manufac- 
ture are  simple  and  the  products  few  in  number. 
When,  however,  the  processes  become  numerous 
or  complicated,  the  necessity  for  such  a  che^ 
becomes  more  urgent,  and  the  cost-keeper  w^ho 
performs  this  function  becomes  an  integral  part 
of  the  manufacturing  system,  and  acts  for  the 
superintendent,  as  an  inspector,  who  keeps  him 
advised  at  all  times  of  the  quality  of  his  own 
work. 

This  conception  of  the  duties  of  a  cost-keeper 
does  not  at  all  interfere  with  his  supplying  the 
financier  w^th  the  information  he  needs,  but 
insures  that  the  information  shall  be  correct, 
for  the  cost-keeper  is  continually  making  a  com- 
parison for  the  benefit  of  the  superintendent, 
of  what  has  been  done  with  what  should  have 
been  done.  Costs  are  valuable  only  as  com- 
parisons, and  comparisons  are  of  little  value 
unless  we  have  a  standard,  w^hich  it  is  the  func- 
tion of  the  engineer  to  set. 

Lack  of  reliable  cost  methods  has,  in  the  past, 
been  responsible  for  much  of  the  uncertainty  so 


40  ORGANIZING  FOR  WORK 

prevalent  in  our  industrial  policies;  but  with 
a  definite  and  reliable  cost  method,  which  en- 
ables us  to  differentiate  between  what  is  lost 
in  manufacturing  and  what  is  lost  in  business, 
it  will  usually  become  easy  to  define  clearly  the 
proper  business  policy. 


VALUE  OF  AN  INDUSTRIAL  PROPERTY 
DEPENDS  ON  ITS  PRODUC- 
TIVE CAPACITY 

In  the  summer  of  1916  a  professor  of  political 
economy  in  one  of  our  most  conservative  uni- 
versities admitted  to  me  that  the  economists 
had  been  obliged  to  modify  many  of  their  views 
since  the  outbreak  of  the  European  war.  My 
comment  was,  that  the  professors  of  political 
economy  were  not  the  only  people  who  had  been 
obliged  to  modify  their  economic  and  industrial 
views. 

The  war  taught  everybody  something.  Mili- 
tary methods  have  undergone  radical  changes, 
but  industrial  methods  are  undergoing  changes 
which  promise  to  be  even  more  radical  than  the 
military  developments  have  been. 

If  there  is  any  one  thing  which  has  been  made 
clear  by  the  war  it  is,  that  the  most  important 
asset  which  either  a  man  or  nation  can  have  is 
the  ABILITY  TO  DO  THINGS.  Our  industrial  and 
economic  developments  have  in  the  past  been 
largely  based  on  the  theory  that  the  most  im- 

41 


42  ORGANIZING  FOR  WORK 

portant  quality  a  man  can  possess  is  his  ability 
to  buy  things ;  but  the  war  has  distinctly  sho^\^l 
that  this  quality  is  secondary  to  the  ability  to 
do  things.  The  recognition  of  this  fact  is  hav- 
ing a  most  far-reaching  effect,  for  it  makes 
clear  that  the  real  assets  of  a  nation  are 
properly  equipped  industries  and  men  trained 
to  operate  them  efficiently.  The  money  which 
has  been  spent  on  an  industrial  property, 
whether  it  has  been  spent  wisely  or  unwisely, 
and  the  amount  of  money  needed  to  reproduce 
it  are  both  secondary  in  importance  to  the 
ability  of  that  plant  to  accomplish  the  object 
for  which  it  was  constructed,  and  hence  cannot 
be  given  the  first  place  in  determining  the  value 
of  the  property. 

Inasmuch  as  every  industrial  plant  is  built 
to  produce  some  article  of  commerce  at  a  cost 
which  will  enable  it  to  compete  with  other  pro- 
ducers, the  value  of  a  plant  as  a  producing  unit 
must  depend  upon  its  ability  to  accomplish  the 
object  for  which  it  was  created. 

To  determine  the  value  of  an  industrial 
property,  therefore,  we  must  be  able  to  know 
with  accuracy  the  cost  at  which  it  can  produce 
its  product,  and  the  amount  it  can  produce.  To 
compare  two  factories  on  this  basis,  their  cost 
systems  must  be  alike ;  for,  if  there  is  a  lack  of 
agreement  as  to  methods  of  cost  accounting, 


VALUE  OF  INDUSTRIAL  PROPERTY   43 

there  will  necessarily  be  a  lack  of  agreement  as 
to  the  estimated  value  of  the  properties.  There 
are  many  methods  of  cost  accounting;  but  there 
are  only  two  leading  theories  as  to  what  cost 
consists  of.    They  are: 

First,  that  the  cost  of  an  article  must  include 
all  the  expense  incurred  in  producing  it,  whether 
such  expense  actually  contributed  to  the  de- 
sired end  or  not. 

Second,  that  the  cost  of  an  article  should  in- 
clude only  those  expenses  actually  needed  for 
its  production,  and  any  other  expenses  incurred 
by  the  producers  for  any  reason  whatever  must 
be  charged  to  some  other  account. 

The  first  theory  would  charge  the  expense 
of  maintaining  in  idleness  that  portion  of  a 
plant  which  was  not  in  use  to  the  cost  of  the 
product  made  in  that  portion  of  the  plant  which 
was  in  operation ;  while  the  second  theory  would 
demand  that  such  an  expense  be  a  deduction 
from  profits,  or  at  least  be  charged  to  some 
other  account.  When  plants  are  operated  at 
their  full  capacity,  both  theories  give  the  same 
cost.  If,  however,  they  are  operated  at  less 
than  their  full  capacity,  the  expense  of  carrying 
the  idle  machinery  is,  under  the  first  theory,  in- 
cluded in  the  cost  of  the  product,  making  the 
cost  greater;  while  under  the  second  theory, 
this  expense  of  idle  machinery  is  carried  in  a 


44  ORGANIZING  FOR  WORK 

separate  account  and  should  be  deducted  from 
the  profits,  leaving  the  cost  constant.  It  is 
most  interesting  to  note  that,  when  costs  are 
figured  on  the  second  basis,  great  activity  im- 
mediately ensues  to  determine  why  machinery 
is  idle,  and  to  see  what  can  be  done  to  put  it 
in  operation.  It  is  realized  at  once  that  this 
machinery  had  better  be  operated,  even  if 
no  profits  are  obtained  from  its  operation 
and  only  the  expense,  or  even  part  of  the 
expense,  of  owning  and  maintaining  it  is 
earned. 

Fig.  1  illustrates  this  subject  most  clearly, 
and  is  an  indication  of  the  efficiency  of  the 
management  as  contrasted  with  that  of  the 
workmen,  about  which  we  hear  so  much.  It  is 
interesting  to  note  that  charts  of  this  nature, 
which  are  being  made  monthly  in  several  large 
plants,  have  already  had  a  very  educational 
influence  on  the  managers  of  those  plants.  They 
show"  that  idle  machinery  w^hich  cannot  be  used 
should  be  disposed  of,  and  the  money  received, 
and  the  space  occupied,  put  to  some  useful 
purpose. 

A  little  consideration  of  the  method  of  get- 
ting the  data  on  this  chart  will  make  its  value 
more  apparent.  It  is  a  logical  outgrowth  of  the 
pre^aous  chapter  on  Production  and  Costs,  and 
is  based  on  the  fact  that  simple  ownership  of  a 


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VALUE  OF  INDUSTRIAL  PROPERTY      47 

machine  costs  money,  inasmuch  as  it  takes  away 
from  available  assets.  For  instance,  if  we  buy 
a  machine  for  $1,000  we  lose  the  interest  on  that 
$1,000,  say  at  tive  per  cent  per  year,  then  we 
have  taxes  on  the  machine  at  two  per  cent,  and 
insurance  of  one  per  cent.  Further,  the  machine 
probably  depreciates  at  a  rate  of  twenty  per 
cent  per  year,  and  we  must  pay  $50  or  more 
per  year  for  the  rent  of  the  space  it  occupies. 
All  these  expenses,  together  $330,  go  on  whether 
we  use  the  machine  or  not.  Thus,  the  simple 
fact  of  our  having  bought  this  machine  and  kept 
it  takes  from  our  available  assets  approximately 
o;ie  dollar  per  day. 

If  now  the  cause  for  idleness  is  ascertained 
each  day  we  can  find  the  expense  of  each  cause 
of  idleness  as  sho^\^l  on  the  chart.  That  part 
which  is  due  to  lack  of  orders  points  out  that 
our  selling  policy  is  w^rong,  or  that  the  plant 
is  larger  than  it  should  be — in  other  words, 
that  somebody  in  building  the  plant  has  over- 
estimated the  demand.  It  is  clear,  however, 
that  no  conclusion  should  be  based  on  the  figures 
for  one  month,  but  on  the  results  for  a  series 
of  months  during  which  the  problem  has  been 
carefully  studied.  If  a  mistake  has  been  made 
in  building  too  large  a  plant,  an  effort  should 
be  made  to  determine  the  proper  disposal,  or 
utilization,  of  the  excess,  in  order  that  the  ex- 


48  ORGANIZING  FOR  WORK 

pense  of  idleness  may  be  taken  care  of,  even  if 
no  profit  can  be  made. 

The  next  column  shows  the  expense  due  to  a 
lack  of  help,  which  means  that  we  must  in- 
vestigate the  labor  policy. 

The  next  column,  showing  the  expense  due  to 
lack  of,  or  poor,  material,  is  an  indication  of 
the  efficiency  of  the  purchasing  policy  and  store- 
keeping  system.  The  next  column  reflects  the 
repair  and  maintenance  department. 

If  in  any  case  the  expense  of  idleness  is 
greater  than  can  be  attributed  to  all  of  these 
causes  together,  it  must  go  in  the  last  column 
as  poor  planning. 

We  can  hardly  claim  that  such  a  chart  gives 
"US  a  measure  of  the  efficiency  with  which  the 
above  functions  are  performed,  but  it  certainly 
does  give  us  an  indication  of  that  efficiency.  In 
several  cases,  the  first  of  such  charts  gotten 
out  resulted  in  the  scrapping  of  machinery 
wiiich  had  been  idle  for  years.  The  space  thus 
saved  was  used  for  a  purpose  for  which  the 
superintendent  had  felt  he  needed  a  new  build- 
ing. In  another  case  it  resulted  in  the  renting 
of  temporarily  idle  machinery  at  a  rate  which 
went  far  toward  covering  the  expense  of  carry- 
ing that  machinery. 

Under  the  first  system  of  cost-keeping  the 
facts  brought  out  by  this  method  are  not  avail- 


VALUE  OF  INDUSTRIAL  PROPERTY      49 

able  and  the  increased  cost  that  a  reduced  out- 
put must  bear  is  a  great  source  of  confusion 
to  the  salesman.  The  newer  system  with  its 
constant  cost  shows  that  non-producing  ma- 
chinery is  a  handicap  to  the  industry  of  a 
company,  just  as  workmen  who  do  not  serve 
some  useful  purpose  in  a  plant,  or  industry,  are 
a  handicap  to  that  plant  or  industry.  Similarly, 
plants  or  people,  therefore,  who  do  not  serve 
some  useful  purpose  to  a  conmiunity  are  a 
handicap  to  that  community,  for  idle  plants 
represent  idle  capital,  and  idle  people  are  not 
producers  but  consumers  only.  The  warring 
nations  recognized  these  facts,  and  put  both 
idle  plants  and  idle  people  to  work  wherever 
possible. 

The  statements  so  far  made  concern  princi- 
pally the  operation  of  industrial  plants  and  the 
production  of  articles  of  commerce;  but  they 
are  none  the  less  true  concerning  the  construc- 
tion of  industrial  plants.  We  may  ask  the  same 
question  about  construction  that  we  ask  about 
operation;  for  instance,  should  the  *^cost"  of  a 
railroad  include  all  the  money  spent  by  the 
people  engaged  in  building  it,  or  should  it  in- 
clude only  such  money  as  contributed  to  the 
building  of  the  road?  As  an  illustration,  is  the 
cost  of  a  piece  of  road  which  was  built  and 
then  abandoned  for  a   superior  route   before 


50  ORGANIZING  FOR  WORK 

being  used  a  part  of  the  cost  of  the  railroad 
built,  or  is  it  an  expense  due  to  improper  judg- 
ment on  the  part  of  the  builders? 

I  am  not  discussing  the  question  as  to  whether 
the  public  should  be  called  upon  to  pay  interest 
on  the  money  uselessly  spent  through  improper 
judgment,  but  I  do  think  that  in  all  construc- 
tion it  should  be  possible  to  separate  those  ex- 
penses which  contributed  to  the  desired  result 
from  those  which  did  not  so  contribute.  A  com- 
parison of  these  amounts  will  give  a  measure 
of  the  efficiency  of  the  builders.  On  this  knowl- 
edge, proper  action  can  ultimately  be  taken. 

Still  another  factor  enters  into  the  value  of 
a  ^ Agoing  plant.''  We  all  have  known  cases 
where  the  same  plant  operated  under  one 
manager  was  a  failure,  and  under  another  a 
very  decided  success.  The  value  of  a  going 
plant,  therefore,  consists  of  two  elements; 
namely,  the  value  of  the  physical  real  estate  and 
equipment,  and  the  value  of  the  organization 
operating  it.  In  considering  the  value  of  an 
organization  we  should  realize  that  it  lies  not 
so  much  in  the  personality  of  the  managers  or 
leaders  (who  may  die  or  go  elsewhere)  as  in 
the  permanent  results  of  their  training  and 
methods,  which  should  go  on  with  the  business, 
and  are  therefore  an  asset  and  not  an  accident. 

We  have  the  authority  of  no  less  a  person 


VALUE  OP  INDUSTRIAL  PROPERTY   51 

than  Andrew  Carnegie,  for  the  statement  that 
his  organizations  were  of  more  value  to  him 
than  his  plants.  Before  we  can  determine  ex- 
actly the  value  of  a  going  plant,  therefore,  we 
must  find  some  means  of  measuring  the  value  of 
the  organization  which  operates  it,  for  this  is 
an  integral  factor  in  the  valuation  of  an  in- 
dustrial property,  which  is  just  as  real  as  the 
more  tangible  brick  and  mortar  of  which  build- 
ings are  composed. 

Our  charts  showing  the  expense  of  idleness 
give  us  at  least  a  rough  indication  of  this 
value,  for  they  show  the  expense  of  inefficient 
management. 


VI 

AN  EXTENSION  OF  THE  CREDIT  SYS- 
TEM TO  MAKE  IT  DEMOCRATIC 

Looking  backward  over  the  great  war,  we  have 
the  opportunity  better  to  understand  and  evalu- 
ate the  different  phenomena  which  were  de- 
veloped by  it.  Many  incidents  which  seemed 
natural  and  in  a  measure  unimportant  when 
they  took  place,  had  a  profound  effect  upon  the 
outcome  of  the  war,  and  promise  to  affect  still 
more  profoundly  the  period  to  follow. 

Perhaps  no  one  incident  was  more  significant 
and  fraught  with  greater  consequences  to  the 
civilization  of  the  w^orld  than  the  transfer,  soon 
after  we  entered  the  war,  of  the  credit  center 
from  Wall  Street  to  Washington.  This  trans- 
fer took  place  without  creating  any  stir,  vnth- 
out  any  special  opposition,  and  with  the  general 
approval  of  the  community  at  large.  We  had 
just  got  the  Federal  Reserve  Banking  System 
into  operation,  and  it  had  enormously  increased 
our  power  as  a  nation  to  dispense  credit,  yet 
notwithstanding  the  most  advantageous  position 
in  which  we  had  thus  been  placed,  the  expert 

52 


THE  CREDIT  SYSTEM  53 

financiers  of  Wall  Street  submitted  without 
remonstrance  to  the  transfer  of  the  whole  credit 
center  to  Washington,  w^here  it  was  adminis- 
tered by  men  who,  compared  with  the  "giants'* 
of  Wall  Street,  were  mere  amateurs. 

^Yhy  was  it  necessary  for  this  transfer  to  be 
made,  and  why  did  Wall  Street  consent  to  it? 
Surely  if  it  had  been  within  the  possibilities  of 
Wall  Street  to  finance  the  war,  a  serious  re- 
monstrance at  least  would  have  been  raised 
to  this  transfer  of  the  credit  center.  The  New 
York  bankers  not  only  did  not  remonstrate,  but 
in  a  most  patriotic  manner  offered  their  ser\^ces 
to  help  the  comparatively  inexperienced  men  in 
Washington  handle  their  great  undertaking. 

If  it  had  been  possible  for  Wall  Street  to 
finance  the  war,  it  is  inconceivable  that  the 
bankers  of  New  York  should  have  allowed  the 
work  to  be  taken  over  by  other  hands.  Wliy, 
then,  was  it  possible  for  Washington  to  do  w^hat 
was  impossible  for  Wall  Street?  The  answer 
to  this  question  is  not  only  very  simple,  but  is 
indicative  of  the  flaw  in  our  whole  business 
system.  The  financial  methods  of  Wall  Street 
were  designed  to  operate  only  when  we  con- 
ducted "business  as  usual;"  hence  their 
mechanism  could  give  credit  only  to  those  who 
had  tangible  securities.  They  had  no  mecha- 
nism for  extending  credit  to  men  who,  although 


54  ORGANIZING  FOR  WORK 

they  had  few  or  no  tangible  assets,  might  have 
tremendous  productive  capacity. 

Because  the  war  demanded  that  the  nations 
as  a  whole  produce  goods  to  the  utmost,  we 
were  obliged  to  invent  a  new  kind  of  finance,  in 
which  the  production  of  goods  would  be  the 
first  object.  There  was  no  tradition  among  the 
bankers  of  this  country  for  financing  any  propo- 
sition except  on  the  basis  of  tangible  assets, 
and  for  the  sole  purpose  of  making  profits. 
In  many  cases  men  who  knew  how  to  build 
ships  or  to  make  guns  did  not  have  tangible 
assets  in  sufficient  quantity  to  satisfy  the  usual 
banking  system.  It  was  therefore  necessary  for 
the  Federal  Government  to  initiate  a  finance 
which  was  new,  at  least  in  this  country:  namely, 
that  of  extending  credit  to  a  man  according  to 
his  productive  capacity.  There  was  no  estab- 
lished mechanism  for  doing  this,  but  it  had  to 
be  done,  and  we  did  it,  in  a  rather  haphazard 
and  ineffective  manner.  Nevertheless,  the  re- 
sults have  justified  the  venture,  and  the  possi- 
bilities of  a  new  credit  system  of  vastly  greater 
potentiality  are  opening  themselves  to  us  as 
soon  as  the  mechanism  for  its  operation  shall 
have  been  developed. 

A  few  of  the  great  leaders  of  industry  have 
understood  in  a  general  way  this  kind  of  finance. 
Among  them  may  be  mentioned  Mr.  Andrew 


THE  CREDIT  SYSTEM  55 

Carnegie,  who  said  he  valued  his  organization 
more  than  his  plants;  and  Mr.  Henry  Ford. 
Mr.  Carnegie,  through  an  understanding  of 
this  general  principle,  was  able  to  dominate  the 
steel  industry;  and  Mr.  Ford,  by  the  same 
token,  became  the  greatest  automobile  manu- 
facturer in  the  world.  The  war  has  backed  up 
Mr.  Carnegie  and  Mr.  Ford  by  proving  that  pro- 
ductive capacity  is  enormously  more  important 
than  wealth,  but  inasmuch  as  our  credit  sys- 
tem has  been  based  on  '* tangible  assets,''  and 
not  on  productive  capacity,  there  has  been 
developed  as  yet  no  generally  accepted  mecha- 
nism for  measuring  the  value  of  productive 
capacity. 

The  cost  and  accounting  systems  in  general 
vogue  take  note  only  of  what  are  called  the 
*'tan;^ible  assets,''  which  are  necessarily  static, 
showmg  only  potentialities.  They  make  but 
little  attempt  to  find  out  how  these  assets  are 
being  used.  The  reason  undoubtedly  is  that  they 
see  such  assets  from  a  sales  standpoint ;  in  other 
words,  our  economic  system  is  still  patterned 
after  the  one  which  was  originally  built  up  to 
serve  the  needs  of  buying  and  selling.  Pro- 
ductive capacity,  on  the  other  hand,  can  be 
measured  only  by  taking  account  of  what  is 
happening.  When  w^e  begin  to  regard  matters 
from  this  standpoint,  the  so-called  **  tangible 


56  ORGANIZING  FOR  WORK 

assets'^  are  not  nearly  so  important  as  the  use 
being  made  of  them,  or  the  amount  of  product 
being  turned  out.  In  other  words,  the  modern 
accounting  system  which  deals  with  production 
must  give  us  a  picture  of  what  is  happening, 
as  well  as  of  the  mechanism  which  causes  the 
happenings.  It  must  be  based  on  charts  which 
show  what  progress  is  taking  place,  and  which 
bear  the  same  relation  to  statistics  as  a  moving 
picture  film  does  to  a  photograph. 

The  question  naturally  asked  is :  If  the  above 
statements  are  correct,  why  have  we  not  realized 
their  correctness  before?  It  took  a  great  war, 
which  required  us  to  put  forth  all  our  strength, 
to  wake  us  up  to  their  importance.  They  have 
been  increasing  in  importance  for  a  number  of 
years,  and  our  failure  to  recognize  this  fact 
was  one  of  the  factors  in  producing  the  great 
catastrophe  through  w^hich  we  have  just  passed. 

For  many  years  previous  to  the  outbreak  of 
the  great  war,  financiers  told  us  there  couldn't 
be  any  war,  because  the  bankers  wouldn't  stand 
for  it.  They  thought  money  controlled  the 
world.  Books  were  written  to  prove  that  we 
could  have  no  more  war.  The  idea  of  w^ar  was 
called  ''the  great  illusion."  Wlien  this  ''illu- 
sion" was  realized,  they  still  maintained  that 
the  war  could  last  only  a  few  months.  Never- 
theless it  lasted  over  four  years,  to  the  great 


THE  CREDIT  SYSTEM  57 

confusion  of  our  economists  and  theorists.  We 
all  know  now  that  it  was  supported,  not  by 
finance,  but  by  the  grand  scale  production  of 
modern  industry.  It  stopped,  not  for  lack 
of  money,  but  for  lack  of  means  to  live  and 
fight  with.  We  see,  then,  without  any  pos- 
sible shadow  of  doubt,  that  inasmuch  as  pro- 
duction was  the  controlling  factor  in  the 
great  war,  it  will  hereafter  be  the  controlling 
factor  in  the  world,  and  that  nation  which 
first  recognizes  the  fundamental  fact  that  pro- 
duction, and  not  money,  must  be  the  aim  of  our 
economic  system,  will,  other  things  being  equal, 
exert  a  predominating  influence  on  the  ci\'iliza- 
tion,  which  is  to  be  built  up  in  the  period  of  re- 
construction upon  which  we  are  now  entering. 

Our  immediate  problem,  then,  is  to  develop  a 
credit  system  that  will  enable  us  to  take  ad- 
vantage of  all  the  productive  forces  in  the  com- 
munity. Such  a  credit  system  must  not  only  be 
able  to  finance  those  who  have  ownership,  but 
also  those  who  have  productive  capacity,  which 
is  vastly  more  important.  This  is  equivalent 
to  saying  that  our  ivealth  in  men  is  more  im- 
portant than  our  tvealth  in  materials.  So  far 
we  have  never  used  this  force  to  more  than  a 
small  fraction  of  its  capacity,  simply  for  the 
reason,  as  previously  stated,  that  the  origina- 
tors of  our  financial  system  were  traders  and 


r.8  ORGANIZING  FOR  WORK 

not  producers.  Now,  however,  when  the  su- 
preme importance  of  the  producer  has  been 
recognized,  we  must  enlarge  our  credit  system 
in  such  a  manner  as  to  enable  us  to  take  full 
advantage  of  his  possibilities;  in  other  words, 
we  must  make  it  democratic. 

To  meet  the  exigencies  of  war  the  Federal 
Government  had  no  hesitation  in  inaugurating 
such  a  finance,  for  the  benefit  of  the  community. 
"While  it  was  done  in  a  new  and  crude  manner, 
we  recognize  that  it  was  in  the  main  successful. 
We  shall  soon  find  that  there  are  exigencies  in 
times  of  peace  also  that  could  be  helped  by  a 
similar  financial  method.  Some  nations  are 
going  to  see  this,  and  realizing  that  the  credit 
system  of  the  country  must  always  be  available 
for  the  benefit  of  the  community,  take  such  ac- 
tion as  to  accomplish  that  result,  and  thereby 
force  others  to  do  the  same.  Through  the  War 
Finance  Corporation  Act  (amended)  section 
21,  March  3,  1919,  we  have  already  taken  such 
action  with  regard  to  exports.  During  the  war, 
we  financed  necessary  production  with  public 
money;  now  in  time  of  peace  we  finance  an- 
other essential  activity  with  public  money.  This 
is  a  most  encouraging  beginning.  Can  we  not 
make  public  money  av^ailable  for  the  financing 
of  all  socially  necessary  activities  whether  of 
war  or  peace? 


THE  CREDIT  SYSTEM  59 

In  the  past  what  a  man  could  do  was  limited 
by  his  financial  and  social  condition;  hence 
many  of  our  most  capable  men  were  severely 
restricted  in  their  activities.  To  be  sure,  a  few 
have  been  able  to  rise  above  their  restrictions 
— a  railsplitter  becomes  the  president  of  a  great 
republic,  and  a  harness-maker  the  first  presi- 
dent of  another.  These  examples,  however, 
only  illustrate  the  possibilities  that  are  unuti- 
lized, because  our  credit  system  has  not  been 
democratic. 


VII 
ECONOMICS  OF  DEMOCRACY 

The  prime  function  of  a  science  is  to  enable 
us  to  anticipate  the  future  in  the  field  with 
which  it  has  to  deal.  Judged  by  this  standard, 
economic  science  has  in  the  past  been  practically 
w^orthless;  for  it  absolutely  failed  to  warn  us 
of  the  greatest  catastrophe  that  has  ever  be- 
fallen the  civilized  world.  Further,  when  the 
catastrophe  burst  upon  us,  economists  and 
financiers  persisted  in  belittling  it  by  insisting 
that  the  great  war  could  last  only  a  few  months. 
Are  they  any  nearer  the  truth  in  their  theories 
of  labor  and  capital,  protection  and  free  trade, 
or  taxation? 

When  they  talk  about  preparedness,  w^hat  do 
they  mean?  Do  they  mean  that  we  must  so 
order  our  living  as  to  prevent  another  such 
catastrophe,  or  do  they  simply  mean  that  ice 
must  aim  to  he  strong  ivhen  the  next  catastrophe 
comes? 

The  latest  economic  thought  indicates  clearly 
that  the  fundamentals  of  both  kinds  of  pre- 
paredness are  the  same,  and  that  preparation 

60 


ECONOMICS  OF  DEMOCRACT  61 

for  the  former  is  the  best  basis  on  which  to 
establish  preparation  for  the  latter.  True 
preparedness,  then,  icould  seem  to  consist  in  a 
readjustment  of  oit\  economic  conditions  ivith 
the  object  of  averting  another  such  catastrophe. 

In  considering  this  subject  we  must  realize 
that : 

The  Nation  reflects  its  leaders. 

The  Army  reflects  its  general. 

The  Factory  reflects  its  manager. 

In  a  successful  industrial  nation,  the  in- 
dustrial leaders  must  ultimately  become  the 
leaders  of  the  nation.  The  condition  of  the  in- 
dustries will  then  become  a  true  index  of  the 
condition  of  the  nation.  If  the  industries  are 
not  properly  managed  for  the  benefit  of  the 
whole  conmmnity,  no  amount  of  military  pre- 
paredness vdW  avail  in  a  real  war.  The  military 
preparations  of  Germany,  vast  as  they  were, 
would  have  collapsed  in  six  months  had  it  not 
been  for  the  social  and  industrial  conditions  on 
which  they  were  based. 

Army  officers  and  others  have  told  us  most 
emphatically  what  military  preparedness  is, 
and  how  to  get  it.  Innumerable  papers  have 
been  written  on  industrial  preparedness,  and 
people  in  general  are  getting  a  pretty  clear  idea 
of  what  we  mean  by  the  term.  Moreover,  many 
are  beginning  to  appreciate  our  lack  in  this 


62  ORGANIZING  FOR  WORK 

respect.  Figs.  2,  3,  4,  and  5  illustrate  what  this 
means. 

Admittedly  these  pictures  are  not  typical  of 
our  industries,  but  they  do  represent  a  condi- 
tion which  is  all  too  common,  and  which  must 
be  corrected  if  we  are  to  be  prepared  either  for 
peace  or  for  war. 

Our  record  in  the  production  of  munitions, 
especially  of  ammunition,  is  not  one  to  be  proud 
of.  Note  what  Mr.  Bascom  Little,  President  of 
the  Cleveland,  Ohio,  Chamber  of  Commerce,  and 
Chairman  of  the  National  Defense  Conunittee 
of  the  Chamber  of  Commerce  of  the  United 
States,  said  in  the  spring  of  1916 : 

**The  work  of  Mr.  Coffin's  committee  has  seemed 
to  us  very  important,  and  so  clearly  related,  in  such 
practical  ways,  to  what  the  business  organizations 
of  the  country  are  trying  to  do  to  further  national 
defense,  that  those  with  which  I  am  connected  im- 
mediately formed  a  union  with  the  committee  on 
learning  of  its  work. 

''The  thing  that  has  stirred  up  the  business  men 
of  the  Middle  West  during  the  past  eighteen  months 
has  been  the  lesson  they  have  learned  in  the  making 
of  war  materials.  It  points  a  very  vivid  moral  to 
all  our  people.  It  all  looked  very  easy  when  it 
started  a  year  and  a  half  ago.  The  plant  with  which 
I  am  associated  in  Cleveland  got  an  order  for  250,000 
three-inch  high  explosive  shells.  It  was  a  simple 
enough  looking  job — just  a  question  of  machining. 


Fig.  2. — Uxprepabed 


Fig.  3. — Prepared 


Two  views  of  the  same  shop  doing  substantially  the  same  work. 
The  lower  picture  was  taken  about  a  year  after  the  upper  from, 
a  slightly  different  viewpoint. 


ECONOMICS  OF  DEMOCRACY  63 

The  forgings  were  shipped  to  us  and  we  were  to  finish 
and  deliver.  It  began  to  dawn  on  us  when  the 
forgings  came  that  this  whole  order,  that  looked  so 
big  to  us,  was  less  than  one  day's  supply  of  shells 
for  France  or  England  or  Russia;  and  we  felt  that 
in  eight  months  by  turning  our  plant,  which  is  a 
first-class  machine  shop,  onto  this  job  we  could  fill 
the  order.  In  a  little  while  we  got  up  against  the 
process  of  hardening.  That — and  mark  what  I  say 
— was  fourteen  months  ago.  To  date  we  have  shipped 
and  had  accepted  130,000  shells,  and  those,  about  half 
our  order,  are  not  complete.  They  still  have  to  be 
fitted  by  the  fuse  maker,  then  fitted  in  the  brass 
cartridge  cases  with  the  propelling  charge,  and  some- 
where, sometime,  maybe,  they  will  get  on  the  battle- 
field of  Europe.  Up  to  the  present,  none  of  them 
has  arrived  there. 

"Now  this  is  the  situation  in  a  high-class  efficient 
American  plant.  This  is  what  happened  when  it 
turned  to  making  munitions  of  war.  The  same  thing 
has  occurred  in  so  many  Middle  Western  plants,  that 
their  ouTiers  have  made  up  their  minds  that  if  they 
are  ever  going  to  be  called  upon  for  service  to  their 
o^vn  country,  they  must  know  more  about  this  busi- 
ness. They  feel  that  they  are  now  liabilities  to  the 
nation,  and  not  assets  in  case  of  war.  Proud  as  we 
may  he  of  our  industrial  perfection,  it  has  not  worked 
here,  and  the  country — particularly  you  in  the  East 
— may  as  well  know  it." 

The  comment  on  this  will  be  that  it  is  three 
years  old,  and  that  we  have  made  great  ad- 


64  ORGANIZING  FOR  WORK 

vances  since  then.  In  reply  I  can  only  say  that 
if  we  have  made  marked  advances  I  have  been 
utterly  unable  to  discover  them. 

The  most  casual  investigation  into  the 
reasons  why  so  many  of  the  munition  manu- 
facturers have  not  made  good,  reveals  the  fact 
that  their  failure  is  due  to  lack  of  managerial 
ability  rather  than  to  any  other  cause.  With- 
out efficiency  in  management,  efficiency  of  the 
workmen  is  useless,  even  if  it  is  possible  to  get 
it.  "With  an  efficient  management  there  is  but 
little  difficulty  in  training  the  workmen  to  be 
efficient.  I  have  proved  this  so  many  times  and 
so  clearly  that  there  can  be  absolutely  no  doubt 
about  it.  Our  most  serious  trouble  is  incompe- 
tency in  high  places.  As  long  as  that  remains 
uncorrected,  no  amount  of  efficiency  in  the  work- 
men Avill  avail  very  much. 

The  pictures  by  which  this  chapter  is  illus- 
trated do  not  show  anything  concerning  the 
efficiency  of  the  individual  workman,  but  they 
are  a  sweeping  condemnation  of  the  inefficiency 
of  those  responsible  for  the  management,  and 
illustrate  the  fact,  so  well  known  to  many  of  us, 
that  our  industries  are  suffering  from  lack  of 
competent  managers, — w^hich  is  another  way 
of  saying  that  many  of  those  who  control  our 
industries  hold  their  positions,  not  through  their 
abiUty  to  accomplish  results,  but  for  some  other 


Fig.  4. — Unprepaeed 


Fig.  5. — Prepared 


Two  views  of  the  same  shop  doing  substantially  the  same  work, 
taken  from  the  same  point.  The  lower  view  was  taken  about  a 
year  after  the  upper. 


ECONOMICS  OF  DEMOCRACY  65 

reason.  In  other  words,  industrial  control  is 
too  often  based  on  favoritism  or  privilege, 
rather  than  on  ability.  This  hampers  the 
healthy^  normal  development  of  industrialism, 
which  can  reach  its  highest  development  only 
when  equal  opportunity  is  secured  to  all,  arid 
when  all  reward  is  equitably  proportioned  to 
service  rendered.  In  other  tvords,  ivhen  in- 
dustry becomes  democratic. 
'  We  are,  therefore,  brought  face  to  face  ^vith 
a  form  of  preparedness  which  is  even  more 
fundamental  than  the  Industrial  Preparedness 
usually  referred  to,  and  I  am  indebted  to  Air. 
W.  N.  Polakov  for  the  name  ''Social^repared- 
ness,^'  which  means  the  democratization  of  in- 
dustry and  the  establishment  of  such  relations 
among  the  citizens  themselves,  and  between 
the  citizens  and  the  government,  as  will 
cause  a  hearty  and  spontaneous  response  on 
the  part  of  the  citizens  to  the  needs  of  the 
countr}\ 

At  the  breaking  out  of  the  great  war  in 
Europe,  the  thing  which  perhaps  surprised  us 
most  was  the  enthusiasm  ^vith  which  the 
German  people  entered  into  it.  Hardly  less 
striking  was  the  slowness  with  which  the  rank 
and  tile  of  Englishmen  realized  the  problems 
they  were  up  against,  and  their  responsibilities 
concerning  them. 


66  ORGANIZING  FOR  WORK 

A  short  consideration  of  what  happened  in 
Germany  in  the  last  half  of  the  nineteenth  cen- 
tury, or  before  the  war,  may  throw  some  light  on 
this  subject.  Bismarck  and  Von  Moltke,  follow- 
ing the  lead  of  Frederick  the  Great,  believed  and 
taught  that  the  great  industry  of  a  country  was 
War.  In  other  w^ords,  that  it  was  more  profit- 
able to  take  by  violence  from  another  than  to 
produce.  The  history  of  the  world,  until  the 
development  of  modern  industrialism^  seemed 
to  bear  out  that  theory.  Bismarck  argued  that 
to  be  strong  from  a  military  standpoint  the 
nation  must  have  a  large  number  of  well 
trained,  intelligent,  healthy  men,  and  he  set 
about  so  ordering  the  industries  of  Germany 
as  to  produce  that  result. 

Military  autocracy  forced  business  and  in- 
dustry to  see  that  men  were  properly  trained 
and  that  their  health  was  safe-guarded.  In 
other  words,  because  of  the  necessity  of  the 
military  state  for  such  men,  the  state  saw  to  it 
that  industry  was  so  organized  as  to  develop 
high-grade  men,  with  the  result  that  a  kind  of 
industrial  democracy  was  developed  under  the 
paternalistic  guidance  of  an  autocratic  military 
party. 

Under  such  influences,  the  increase  of  educa- 
tion and  the  development  of  men  went  on  apace, 
and  were  soon  reflected  in  an  industrial  system 


ECONOMICS  OF  DEMOCRACY  67 

which  bade  fair  to  surpass  any  other  in  the 
world. 

In  England,  on  the  other  hand,  the  business 
system  was  controlled  by  an  autocratic  and 
*' socially  irresponsible  finance,'*  which,  to  a 
large  extent,  disregarded  the  interest  of  the 
workman  and  of  the  conununity.  At  the  break- 
ing out  of  the  war,  the  superiority  of  the  in- 
dustries of  Germany  over  the  industries  of 
England  was  manifest,  not  only  by  the  feeling 
of  the  people,  but  by  their  loyalty  to  the  Na- 
tional Government,  which  had  so  cared  for,  or 
disregarded,  their  individual  welfare.  This  su- 
periority became  so  rapidly  apparent,  that  in 
order  to  make  any  headway  against  Germany, 
England  was  obliged  to  imitate  the  methods 
which  had  been  developed  in  Germany,  and  to 
say  that  the  industries  (particularly  the  muni- 
tion factories)  ivhicli  were  needed  for  the  salva- 
tion of  the  country,  must  serve  the  coimtry  and 
not  the  individual.  The  increased  efficiency 
which  England  showed  after  the  adoption  of 
this  method  was  most  marked,  and  in  striking 
contrast  with  the  inefficiency  displayed  previ- 
ously in  similar  work. 

Confessedly  our  industries  are  not  managed 
in  the  interest  of  the  community,  but  in  that  of 
an  autocratic  finance.  In  Germany  it  was 
proved  beyond  doubt  that  an  industrial  system, 


68  ORGANIZING  FOR  WORK 

forced  by  military  autocracy  to  serve  the  com- 
munity, is  vastly  stronger  than  an  industrial 
system  which  serves  only  a  financial  autoc- 
racy. 

The  method  by  which  Germany  developed  a 
singleness  of  purpose  and  tremendous  power 
both  for  peace  and  for  war — namely,  autocratic 
military  authority — is  hateful  to  us,  but  we 
must  not  lose  sight  of  the  fact  that  such  power 
was  developed  and  may  be  developed  by  some 
other  nation  again  in  the  future.  If  we  would 
be  strong  when  we  are  again  faced  with  a  con- 
tingency of  developing  a  greater  strength,  or 
submitting,  we  must  first  of  all  develop  a  single- 
ness of  purpose  for  the  whole  community. 

England  demonstrated  the  same  thing;  for 
had  England  not  rapidly  increased  her  efficiency 
in  the  production  of  munitions,  it  would  have 
been  indeed  a  sad  day  for  the  British  Empire. 

In  considering  these  facts,  we  should  ask 
ourselves  if  there  is  not  some  fundamental  fact 
which  is  accountable  for  the  success  of  industry 
under  such  control.  The  one  thing  which  stands 
out  most  prominently  is  the  fact  that,  in  the 
attempt  to  make  the  industries  serve  the  com- 
munity, an  attempt  was  made  to  abolish  in- 
dustrial privilege,  and  to  give  evert/  man  an 
opportunity  to  do  what  he  could  and  to  reward 
him  correspondingly. 


ECONOMICS  OF  DEMOCRACY  69 

As  before  stated,  the  industrial  system  of 
Germany  was  developed  largely  as  an  adjunct 
to  its  military  system,  which,  to  a  degree  at 
least,  forced  the  abolition  of  financial  and  in- 
dustrial privilege,  and  thereby  in  a  large 
measure  eliminated  incompetency  in  liigh 
places.  What  results  may  not  be  expected, 
therefore,  if  we  abolish  privilege  absolutely, 
and  devote  all  our  efforts  to  the  development 
of  an  industrialism  w^hich  shall  serve  the  com- 
munity and  thus  '' develop  the  unconquerable 
power  of  real  democracy  f  " 

The  close  of  the  war  and  the  abolition  of 
political  autocracy  has  brought  us  face  to  face 
with  the  question  of  a  choice  between  the  eco- 
nomic autocracy  of  the  past,  or  an  economic 
democracy.  To  prove  that  this  is  not 
mere  idle  speculation,  note  what  one  of  our 
leading  financiers  said  on  the  subject  during 
the  war: 

*'The  President  of  the  New  York  Life  Insurance 
Company,"  says  Mr.  Charles  Ferguson,  "told  the 
State  Chamber  of  Commerce,  during  the  great  war, 
that  under  modern  conditions  the  existence  of  even  two 
rival  sovereignties  on  this  little  planet  has  become 
absurd.  This  is  true.  We  must  therefore  drive  for- 
ward, through  incredible  waste  and  slaughter,  to  the 
settlement  of  the  question  of  which  of  the  rival 
Powers  is  to  build  the  New  Rome,  and  establish  a 


70  ORGANIZING  FOR  WORK 

military  world-state  on  the  Cassarean  model — or  else 
we  must  now  set  our  faces  toward  a  real  democracy.'' 

What  is  the  basis  of  such  a  democracy? 

The  one  thing  in  all  the  ci\dlized  world,  which, 
like  the  Catholic  Church  of  the  middle  ages, 
crosses  all  frontiers  and  binds  together  all 
peoples,  is  business.  The  Chinaman  and  the 
American  by  means  of  an  interpreter  find  a 
common  interest  in  business.  Business  is 
therefore  the  one  possible  bond  which  may 
bring  universal  peace.  Economists  and  finan- 
ciers fully  realized  this,  and  believed  that  an 
autocratic  finance  could  accomplish  the  re- 
sult. That  was  their  fatal  error.  The  bene- 
ficiaries of  privilege  invariably  battle  among 
themselves,  even  if  they  are  'strong  enough  to 
hold  in  subjection  those  that  have  no  privileges, 
and  who  have  to  bear  the  brunt  of  the  fight. 

This  is  true  whether  the  beneficiaries  be  in- 
dividuals or  nations.  Hence  neither  internal 
strife  nor  external  war  can  be  eliminated  as 
long  as  some  people  have  privileges  over  others. 

If  privilege  be  eliminated  not  only  wall  the 
danger  of  war  be  minimized,  but  the  causes  of 
domestic  strife  will  be  much  reduced  in  number. 
Then,  and  not  until  then,  will  the  human  race 
be  in  a  position  to  make  a  continuous  and  un- 
interrupted advance. 


ECONOMICS  OF  DEMOCRACY  71 

The  nation  which  first  realizes  this  fact  and 
eliminates  privilege  from  business,  will  have 
a  distinct  lead  on  all  others,  and,  other  condi- 
tions being  equal,  will  rapidly  rise  to  a  dominat- 
ing place  in  the  w^orld.  Such  a  nation  will  do 
by  means  of  the  arts  of  peace,  that  which  some 
Germans  seemed  to  think  it  was  their  mission 
to  do  by  means  of  war.  The  opportunity  is 
knocking  at  our  door.    Shall  w^e  turn  it  away? 

The  answer  is  that  we  must  not  turn  it  away. 
In  fact,  we  dare  not,  if  we  would  escape  the 
economic  convulsion  that  is  now  spreading  over 
Europe.  Soon  after  the  signing  of  the  armis- 
tice Mr.  David  R.  Francis,  formerly  ambassa- 
dor to  Russia,  said  that  the  object  of  the  Soviet 
Government  was  to  prevent  the  exploitation  of 
one  man  by  another.  According  to  Mr.  Francis, 
the  cause  of  this  convulsion  is  the  attempt  of 
the  social  body  to  free  itself  of  the  exploitation 
of  one  man  by  another.  Then  he  added,  '*Such 
an  aim  is  manifestly  absurd."  The  convulsion 
is  made  all  the  more  severe  because  there  are 
people  in  every  community  that  not  only  con- 
sider this  aim  absurd,  but  use  all  their  influence 
to  prevent  the  accomplishment  of  it. 

If,  at  the  end  of  a  victorious  w^ar  for  de- 
mocracy, a  prominent  representative  of  the 
victors  is  willing  to  proclaim  publicly  such  a 
sentiment,  it  is  perfectly  evident  that  we  have 


72  ORGANIZING  FOR  WORK 

not  3'et  soh^ed  all  of  our  problems.  Wliether  we 
approve  of  the  Soviet  method  of  government  or 
not,  even  Mr.  Francis  must  admit  that  their 
aim,  as  expressed  by  him,  is  a  worthy  one.  It 
would  be  surprising  if  in  the  time  which  has 
elapsed  since  the  Russian  revolution  an  entirely 
satisfactory  and  permanent  method  should  have 
been  developed  to  prevent  the  exploitation  of 
one  man  by  another,  but  the  fact  that  they  have 
not  yet  established  such  a  government  is  hardly 
a  basis  for  the  statement  that  the  establishment 
of  such  a  government  is  absurd. 

This  statement  by  Mr.  Francis  brings  clearly 
to  the  front  the  question — Is  our  business  sys- 
tem of  the  future  going  to  continue  to  be  one 
of  exploitation  of  one  man  by  another,  or  is  it 
possible  to  have  a  business  system  from  which 
such  privilege  has  been  eliminated? 

In  this  connection  it  may  be  interesting  to 
note  that,  for  the  past  fifteen  years,  I  and  a 
small  band  of  co-workers  have  been  attempting 
to  develop  a  system  of  industrial  management 
which  should  not  be  dependent  on  the  exploita- 
tion of  one  man  by  another,  but  should  aim  to 
give  each  as  nearly  as  possible  his  just  dues. 
Strange  as  it  may  seem  to  those  of  the  old 
way  of  thinking,  the  more  nearly  successful  we 
have  been  in  this  attempt,  the  more  prosperous 
have  the  concerns  adopting  our  methods  be- 


ECONOMICS  OF  DEMOCRACY  73 

come.  In  \dew  of  this  fact  we  beg  to  submit 
that  the  proposition  does  not  seem  to  us  to  be 
absurd,  even  though  we  may  not  admit  that 
any  of  the  solutions  heretofore  offered  have 
really  accomplished  the  result.  In  a  subsequent 
chapter,  however,  we  shall  present  the  progress 
which  we  have  recently  made  in  this  direction. 


VIII 

DEMOCRACY  IN  PRODUCTION 

(Progress  Charts) 

It  is  unquestionable  that  the  strategy  of 
General  Foch,  who  so  promptly  took  advantage 
of  the  error  of  the  Germans  in  not  flattening  out 
the  French  salient  between  Montdidier  and 
Chateau-Thierry,  enabled  him  to  establish  his 
offensive  which,  with  the  new  spirit  put  into 
his  whole  force  by  the  splendid  fresh  troops  of 
the  American  army,  would  undoubtedly  have 
wrested  victory  from  the  Germans  in  the  long 
run,  even  if  they  had  been  able  to  stave  off  the 
revolution  at  home  and  keep  their  economic  sys- 
tem in  good  shape.  It  is  a  fact,  how^ever,  that 
a  growing  discontent  due  to  the  increasing  hard- 
ships which  their  economic  system  was  unable 
to  relieve,  and  which  threatened  a  revolution, 
was  unquestionably  an  important  factor  in 
lowering  the  morale  of  the  army  and  worked 
strongly  in  our  favor.  Of  course,  a  knowledge 
of  the  real  conditions  at  home  was  kept  as  much 
as  possible  from  the  soldiers  at  the  front,  but 

74 


DEMOCRACY  IN  PRODUCTION  75 

from  what  we  have  learned  since  the  armistice 
it  must  have  been  perfectly  clear  to  those  in 
control  some  time  before  the  armistice,  that 
their  economic  strength  was  exhausted,  and 
hence,  the  end  had  come. 

It  has  even  been  suggested  that  the  attempt 
of  the  Germans  to  extend  the  salient  at  Chateau- 
Thierry  before  they  flattened  out  the  salient 
between  Montdidier  and  that  point,  was  taking 
a  /'gambler's  chance,"  for  they  realized  then 
that  they  were  near  the  end  of  their  economic 
resources  and  that  they  must  have  a  quick  vic- 
tory or  none. 

Wliether  this  theory  is  true  or  not,  the  fact 
remains  that  the  threatened  collapse  of  the 
economic  system  was  a  controlling  factor  during 
the  last  few  months  of  the  war.  In  other  words, 
war  cannot  be  waged  unless  the  economic  sys- 
tem is  capable  of  supporting  the  population  and 
also  furnishing  the  fighting  equipment.  To  be 
as  strong  as  possible  in  war,  therefore,  we  must 
develop  an  economic  system  which  will  enable 
us  to  exert  all  our  strength  for  the  common 
good,  which  will  therefore  be  free  from  auto- 
cratic practices  of  either  rich  or  poor,  for  such 
practices  take  away  from  the  community  for  the 
benefit  of  a  class. 

It  is  pretty  generally  agreed  that  this  philoso- 
phy is  correct  in  time  of  war,  but  both  the  rich 


76  ORGANIZING  FOR  WORK 

and  the  poor  seem  to  think  that  we  do  not  need 
to  be  strong  in  time  of  peace,  and  that  we  may 
with  impunity  go  back  to  the  pull  and  haul  for 
profits  regardless  of  the  results  to  the  com- 
munity. Such  a  condition  does  not  produce 
strength,  but  weakness;  not  harmony,  but  dis- 
cord. 

In  the  struggle  that  arises  under  the  above 
conditions,  between  an  autocratic  ownership  and 
an  autocratic  labor  party,  the  economic  laws 
which  produce  strength  are  largely  disregarded 
and  the  whole  industrial  and  business  system 
becomes  infected  with  such  a  feebleness  that  it 
is  incapable  of  supporting  our  complicated  sys- 
tem of  modern  civilization.  This  is  exactly 
what  is  happening  in  eastern  Europe,  where 
civilization  is  tottering  due  to  the  fact  that  the 
industrial  and  business  system  by  which  it  was 
supported  is  no  longer  functioning  properly. 
The  production  portion  seems  to  have  abso- 
lutely broken  do\\Ti,  hence  there  is  a  shortage 
everywhere  of  the  necessities  of  life.  This 
failure  is  undoubtedly  due  to  a  combination  of 
causes;  but  whatever  the  cause,  the  result  is 
the  same,  for  the  violation  of  economic  laws, 
whether  through  interest,  ignorance,  or  indo- 
lence, will  ultimately,  to  use  the  language  of  a 
distinguished  economist,  ^^blow  the  roof  off  our 
qivilization  just  as  surely  as  the  violation  of 


DEMOCRACY  IN  PRODUCTION  77 

the  laws  of  chemistry  wall  produce  an  explosion 
in  the  laboratory." 

We  must  avoid  the  possibility  of  this  explo- 
sion at  all  hazards.  If  we  would  accomplish 
this  result  we  must  begin  at  once  not  only  to 
make  clear  what  the  correct  economic  laws  are, 
but  to  take  such  steps  in  conformity  with  them 
as  will  get  the  support  of  the  community  in 
general,  and  lessen  the  danger  of  following 
Europe  into  the  chaos  toward  which  she  seems 
heading. 

Those  who  believed  the  war  could  last  only  a 
few  months  based  their  opinion  on  the  destruc- 
tion of  wealth  it  would  cause.  They  had  abso- 
lutely no  conception  of  the  tremendous  speed 
with  which  this  loss  might  be  made  good  by  the 
productive  force  of  modern  industry.  They  did 
not  understand  that  the  controlling  factor  in 
the  war  would  ultimately  become  productive 
capacity. 

When  we  entered  the  war,  it  was  of  course 
necessary  to  raise  money,  and  through  the 
persistent  use  of  the  slogan  Money  uill  ivin  the 
ivar,  our  loans  were  promptly  oversubscribed. 
Although  we  were  able  to  raise  all  the  money  we 
needed,  w^e  had  difficulty  in  transforming  that 
money  quickly  into  fighting  power,  for  we  made 
the  fundamental  error  of  considering  that  those 
who  knew  how  to  raise  money,  also  knew  how 


78  ORGANIZING  FOR  WORK 

to  transform  it  into  food  and  clothing,  weapons, 
and  ships.  The  sudden  ending  of  the  war  pre- 
vented us  from  realizing  how  great  this  error 
was.  Even  a  superficial  review  of  what  took 
place  during  1918,  however,  reveals  the  fact 
that  our  efforts  at  production  were  sadly  in- 
effective. So  true  is  this  that  some  of  those  in 
aoithority  not  only  discouraged  all  efforts  to 
show  comparison  between  their  promises  and 
their  performances  in  such  a  manner  that  the 
public  could  understand,  but  they  actually  for- 
bade such  comparisons  to  be  made. 

There  was,  in  Washington,  at  the  beginning 
of  the  war,  however,  one  man  who  understood 
the  necessity  for  just  this  kind  of  record,  which 
should  be  kept  from  day  to  day  and  should  show 
our  progress  in  the  work  we  had  to  do.  This 
man  was  Brigadier  General  William  Crozier, 
Chief  of  Ordnance.  Apparently  alone  among 
those  in  authority  at  that  time,  he  recognized 
the  important  principle  that  authority  and  re- 
sponsibility for  performance  must  be  centered 
in  the  same  individual,  and  organized  his  de- 
partment on  that  basis.  Before  the  breaking 
out  of  the  war  a  simple  chart  system,  which 
showed  the  comparison  between  promises  and 
performances,  had  been  established  in  the 
Frankford  Arsenal.  This  system  General 
Crozier  began  to  extend  throughout  the  Ord- 


DEMOCRACY  IN  PRODUCTION  79 

nance  Department  as  soon  as  we  entered  the 
war,  in  order  that  he  might  at  all  times  see 
how  each  of  his  subordinates  was  performing 
the  work  assigned  to  him.  As  the  method  was 
new,  progress  was  necessarily  slow,  but  before 
General  Crozier  was  removed  from  his  position 
as  Chief  of  Ordnance,  in  December,  1917,  a 
majority  of  the  activities  of  the  Ordnance  De- 
partment were  sho\vn  in  chart  form  so  clearly 
that  progress,  or  lack  of  progress,  could  be 
seen  at  once.  No  other  government  department 
had  at  that  time  so  clear  a  picture  of  its  prob- 
lem and  the  progress  being  made  in  handling  it. 
The  following  incident  will  serve  to  show  the 
results  that  had  been  produced  by  this  pol- 
icy. Late  in  November,  1917,  Dean  Herman 
Schneider  of  the  University  of  Cincinnati,  was 
called  to  the  Ordnance  Department  to  assist  on 
the  labor  problem.  Before  deciding  just  how 
he  would  attack  his  problem,  he  naturally  in- 
vestigated the  activities  of  the  department  as 
a  whole,  with  the  result  that  early  in  December, 
1917,  he  wrote  General  C.  B.  Wheeler,  under 
whom  he  was  working,  a  letter  from  which  the 
following  is  an  extract: 

**The  numler  of  men  needed  for  the  Ordnance 
Program  should  be  ascertainable  in  the  production 
sections  of  the  several  divisions  of  the  Ordnance  De- 


80  ORGANIZING  FOR  WORK 

partment.  Investigation  so  far  (in  three  production 
sections)  discloses  that,  except  in  isolated  cases,  a 
shortage  of  labor  is  not  evident. 

''Each  production  section  has  production  and 
progress  chart  systems.  These  seem  to  vary  in  minor 
details  only.  Even  without  rigid  standardization, 
the  charts  give  a  picture  of  the  progress  of  the  whole 
Ordnance  Program  including  lags  and  the  causes 
therefor.  Combined  in  one  office  and  kept  to  date 
they  would  show  the  requirements  as  to  workers,  as 
well  as  to  materials,  transportation,  accessory  ma- 
chinery, and  all  of  the  other  factors  which  make  or 
break  the  program. 

''With  a  plan  of  this  sort  the  Ordnance  Depart- 
ment would  be  in  a  position  to  state  at  any  time  its 
immediate  and  probable  future  needs  in  men,  ma- 
terials, transportation,  and  equipment. 

"The  other  Departments  of  the  War  Department 
(and  of  other  departments  engaged  in  obtaining  wiar 
material)  can,  through  their  Production  Sections,  do 
what  the  Ordnance  Department  can  do,  namely,  as- 
semble in  central  offices  their  production  and  progress 
charts  through  which  they  would  know  their  immedi- 
ate and  probable  future  needs. 

"Finally,  these  charts  assembled  in  one  clearing 
office  would  give  the  data  necessary  in  order  to  mahe 
the  wJiole  program  of  war  production  move  with  fair 
uniformity,  without  disastrous  compe  ition  and  with 
justice  to  the  workers.'^ 

This  letter  not  only  sets  forth  clearly  what 
General  Crozier  had  accomplished,  but  it  shows 


DEMOCRACY  IN  PRODUCTION  81 

still  more  clearly  Dean  Schneider's  conception 
of  the  problem  which  at  that  time  lay  immedi- 
ately before  us.  General  Crozier's  successors 
allowed  the  methods  which  had  been  developed 
to  lapse,  and  Dean  Schneider's  vision  of  the 
industrial  problem  and  ability  to  handle  it  were 
relegated  to  second  place. 

The  methods  referred  to  by  Dean  Schneider 
were  afterward  adopted  in  an  elementary  way 
by  the  Shipping  Board  and  by  the  Emergency 
Fleet  Corporation.  Although  they  were  never 
used  to  any  great  extent  by  those  in  highest 
authority,  who  apparently  were  much  better 
satisfied  simply  to  report  what  they  had  done, 
rather  than  to  compare  it  too  closely  with  what 
they  might  have  done,  they  were  used  to  great 
advantage  by  many  who  were  responsible  for 
results  in  detail. 

Fig.  6  is  a  sample  of  the  charts  referred  to 
above.  This  is  an  actual  Ordnance  Department 
chart,  entered  up  to  the  end  of  December,  1917, 
the  names  of  the  items  being  replaced  by  let- 
ters. It  was  used  to  illustrate  the  methods 
employed  and  to  instruct  people  in  the 
work. 

The  distance  between  the  current  date  and 
the  end  of  the  heavy  or  cumulative  line  indi- 
cates whether  the  deliveries  of  any  article  are 
ahead  or  behind  the  schedule  and  how  much. 


82  ORGANIZING  FOR  WORK 

It  is  thus  seen  that  the  short  lines  indicate  in- 
stantly the  articles  which  need  attention. 

As  said  before,  when  General  Crozier  was  re- 
moved from  his  office  about  the  1st  of  December, 
1917,  he  had  a  majority  of  the  items  for  which 
he  was  responsible  charted  in  this  manner,  and 
was  rapidly  getting  the  same  kind  of  knowledge 
about  the  other  items.  Charts  of  this  character 
were  on  his  desk  at  all  times,  and  he  made 
constant  use  of  them. 

This  chart  is  shown  only  as  a  sample  and 
represents  a  principle.  Each  item  on  such  a 
chart  as  the  above  may  have  been  purchased 
from  a  dozen  different  suppliers,  in  which  case 
the  man  responsible  for  procuring  such  articles 
had  the  schedule  and  progress  of  each  contract 
charted  in  a  manner  similar  to  that  on  Chart  6. 
Chart  7  is  such  a  chart.  The  lines  on  Chart  6 
represented  a  summary  of  all  the  lines  on  the 
corresponding  detail  charts. 

Similar  charts  were  used  during  the  war  to 
show  the  schedules  and  progress  in  building 
ships,  shipyards,  and  flying  boats — and  are  now 
being  used  for  the  same  purpose  in  connection 
with  the  manufacture  of  many  kinds  of  ma- 
chinery. The  great  advantage  of  this  type  of 
chart,  known  as  the  straight  line  chart,  is  that 
it  enables  us  to  make  a  large  number  of  com- 
parisons at  once. 


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Fjg.  6.— Progress  C'habt  (topi  and  Fio.  7.— Order  Chart  (bottom) 
At   the    left   of   the    upper   chart    is    b    list   of   articles  lo    be    [trocured      The  amuuiita  for   which  orders  have  been   placed 
shown   in  the  column   hiadcd  "Amount  ordered"     The  dati-s    between  ivliith  deliveries  are  to  be  miide  are  shown  by  angles, 
amount  to  be  delivered  each  month  is  shown  by  a  tigure  at  th<-  left  aide  of  the  ajtace  assigned  to  that  month.     The  figure  at 
right  of  each  time  space  shows  the  total  amount  to  be  delivered  up    to   that    date. 


only  half  the  amount  due  is  received,  this  line  goes  only  h 
of  lines  indicates  the  amount  delivered  during  that  month 
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line  IB  drawn  to  the  scale  of  the  piriods  through  which  it 
will  represent  the  amount  of  time  deliveries  are  behind  or 
which  requii 


iiount  delivered  up  to  the  date  of  the  last  entry      It    will   be  noted  that,   if  this 
ugh   which   it  passes,    the    distance    from    the   end    of    the    line    to    the    ciirrinl    tlatr 
ime  deliveries  are  behind  or  ahead  of  the  schedule.     It  is  thus  seen  that  the  short  cumulative  lines 
.ention.  as  they  represent  items  that   are  farthest  behind  schedule      Z  represents  no  di'liveries 
chart  is  a  avimmary  of  the  individual  orders  and  is  represented  on  the  upper  chart  by  line  A. 


DEMOCRACY  IN  PRODUCTION  83 

From  the  illustrations  given  the  following 
principles  upon  which  this  chart  system  is 
founded  are  easily  comprehended: 

First :  The  fact  that  all  acti\dties  can  be 
measured  by  the  amount  of  time  needed  to  per- 
form them. 

Second :  The  space  representing  the  time  unit 
on  the  chart  can  be  made  to  represent  the 
amount  of  activity  which  should  have  taken 
place  in  that  time. 

Bearing  in  mind  these  two  principles,  the 
w^iole  system  is  readily  intelligible  and  affords 
a  means  of  charting  all  kinds  of  acti\'ities,  the 
common  measure  being  time. 


IX 

DEMOCRACY  IN  THE  SHOP 

(Man  Records) 

In  the  chapter  on  **An  Extension  of  the  Credit 
System,'^  we  referred  only  to  financial  credit. 
The  term  credit,  of  course,  has  a  much  broader 
meaning.  For  instance,  when  a  man  has  proved 
his  knowledge  on  a  certain  subject,  we  ^'give 
him  credit'*  for  that  knowledge;  when  he  has 
proved  his  ability  to  do  things,  we  **give  him 
credit''  for  that  ability.  In  other  words,  we 
have  confidence  that  he  will  make  good.  The 
credit  which  we  give  a  man,  or  the  confidence 
which  we  place  in  him,  is  usually  based  on  his 
record.  We  placed  confidence  in  General 
Pershing  because  of  his  record.  We  gave  him 
credit  for  being  able  to  handle  the  biggest  job 
we  had,  and  our  faith  was  not  misplaced.  If 
we  had  an  exact  record  of  the  doings  of  every 
man,  we  should  have  a  very  comprehensive 
guide  for  the  placing  of  confidence  and  the  ex- 
tending of  credit — even  financial  credit. 

Inasmuch,  however,  as  our  record  of  indi- 
viduals is  exceedingly  meager  and  our  informa- 

84 


DEMOCRACY  IN  THE  SHOP  85 

tion  concerning  them  is  usually  derived  from 
interested  parties,  we  have  very  little  sub- 
stantial basis  for  placing  confidence  in  or  ex- 
tending credit  to  people  in  general.  It  is  there- 
fore hardly  to  be  expected  that  a  business  sys- 
tem mil  risk  investment  without  a  more  sub- 
stantial guarantee  for  the  financial  credit  it 
extends.  It  would  seem,  then,  that  if  we  really 
wish  to  establish  such  a  credit  system  as  is 
described  in  Chapter  VI,  we  must  keep  such  a 
record  of  the  activities  of  individuals  as  will 
furnish  the  information  needed  to  give  a  proper 
guarantee. 

All  records,  however,  are  comparative,  and 
the  record  of  a  man's  performance  is  compara- 
tively valueless  unless  we  are  able  to  compare 
what  he  has  done  with  what  he  should  have 
done.  The  possibilities  in  the  modern  industrial 
system  are  so  great  that  there  is  scarcely  any 
conception  of  them  by  people  in  general.  In 
fact,  many  accomplishments  which  have  been 
heralded  as  quite  extraordinary,  are  shown  on 
careful  examination  to  have  been  quite  the  re- 
verse, when  a  comparison  is  made  with  the  pos- 
sibilities. 

In  the  past  if  a  man  has  accomplished  a  de- 
sirable result,  we  have  been  pretty  apt  to  let  it 
go  on  its  face  value,  and  have  seldom  inquired 
into  how  it  was  done.    We  have  no  criticism  of 


86  ORGANIZING  FOR  WORK 

this  as  a  habit  of  the  past,  but  the  war  has 
brought  an  entirely  different  viewpoint  into  the 
world,  and  shown  others  besides  Americans  how 
inefficiently  the  world  is  conducting  its  civiliza- 
tion. Other  peoples  have  realized  that  the  real 
asset  of  a  nation  is  its  human  power,  and  un- 
doubtedly will  soon  begin  to  adopt  means  of 
measuring  this  power  to  the  end  that  they  may 
use  it  more  effectively. 

Some  of  us  have  made  a  start  in  this  work 
by  keeping  individual  records  of  operatives, 
showing  as  nearly  as  possible  what  they  have 
done  in  comparison  with  what  they  might  have 
done,  with  the  reasons  for  their  failing  to  ac- 
complish the  full  amount.  By  systematically 
attempting  to  remove  the  obstacles  Avhich  stood 
in  the  way  of  complete  accomplishment,  we  have 
secured  a  remarkable  degree  of  co-operation, 
and  developed  in  workmen  possibilities  which 
had  been  unsuspected.  Further,  we  have  de- 
veloped the  fact  that  nearly  all  workers  wel- 
come any  assistance  which  may  be  given  them 
by  the  foreman  in  removing  the  obstacles  which 
confront  them,  and  teaching  them  to  become 
better  workers.  Chart  No.  8  is  an  actual  chart 
of  this  type  from  a  factory  and  covers  a  period 
of  two  weeks.  Each  working  day  was  ten  hours, 
except  Saturday,  which  was  ^ve.  The  charts 
are  ruled  accordingly.    If  a  worker  did  all  that 


DEMOCRACY  IN  THE  SHOP  87 

was  expected  of  him  in  a  day  the  thin  line  goes 
clear  across  the  space  representing  that  day, 
and  if  he  did  more  or  less,  the  number  of  such 
thin  lines  or  the  length  of  the  line  indicate  the 
amount.  The  number  of  days'  work  he  did  in 
a  week  is  represented  by  the  hea\y  line.  Wher- 
ever a  dotted  line  is  shown,  it  indicates  that 
during  that  time  the  man  worked  on  a  job  for 
which  we  had  no  estimated  time.  The  letters 
are  symbols  indicating  the  cause  of  failure  to 
perform  the  full  amount  of  work.  A  key  to 
these  symbols  follows  Chart  No.  8. 

Inasmuch  as,  according  to  our  idea  of  man- 
agement, it  is  a  foreman's  function  to  remove 
the  obstacles  confronting  the  workmen,  and  to 
teach  them  how  to  do  their  work,  an  average 
of  the  performance  of  the  workmen  is  a  very 
fair  measure  of  the  efficiency  of  the  foreman. 
This  is  shown  by  the  line  at  the  top  of  the 
chart.  It  may  readily  be  seen  that  such  a  chart 
system  gives  a  very  fair  means  of  fixing  the 
compensation  of  workers  and  foremen,  and  a 
series  of  such  charts  kept  up  week  after  week 
will  give  us  a  measure  of  the  amount  of  confi- 
dence which  we  may  place  in  the  individual 
foreman  and  workman,  for  if  all  obstacles  are 
removed  by  the  foreman  the  workman's  line  is 
a  measure  of  his  effectiveness. 

Just  as  the  line  representing  the  average  of 


88  ORGANIZING  FOR  WORK 

all  the  workers  is  a  measure  of  the  foreman,  so 
a  line  representing  the  average  of  all  the  fore- 
men is  in  some  degree  at  least  a  measure  of  the 
superintendent. 

The  improvement  which  has  been  made  by 
workers  under  our  teaching  and  record-keeping 
systems  involves  more  than  is  at  first  apparent. 
For  instance,  it  has  clearly  been  proven  that 
poor  workmen  are  much  more  apt  to  migrate 
than  good  workmen.  The  natural  conclusion 
from  this  is  that  if  we  wish  to  make  workmen 
permanent,  our  first  step  must  be  to  make  better 
workmen  of  them.  Our  experience  proves  this 
conclusion  to  be  correct. 

Many  of  our  large  industrial  concerns  have 
estimated  that  the  cost  of  breaking  in  a  new 
employee  is  very  high — running  from  about 
$35.00  up.  We  have  already  satisfied  ourselves 
that  if  only  a  fraction  of  this  amount  is  ex- 
pended in  training  the  inferior  workman,  we 
can  reduce  migration  very  materially.  In  other 
words,  money  spent  in  proper  teaching  and 
training  of  workmen  is  a  highly  profitable  in- 
vestment for  any  industrial  concern,  provided 
there  is  some  means  of  measuring  and  recording 
the  result.  So  beneficial  have  our  training 
methods  proved  that  we  are  inclined  to  believe 
that  the  practice  of  stealing  good  workmen  from 


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DEMOCRACY  IN  THE  SHOP  89 

one^s  competitor  itill  ultimately  prove  to  he  as 
Mtipro  fit  able  as  stealing  his  property. 

Before  the  rise  of  modern  industry  the  world 
was  controlled  largely  by  predatory  nations  who 
held  their  own  by  exploiting  and  taking  by  force 
of  arms  from  their  less  powerful  neighbors. 
"With  the  rise  of  modern  industrialism,  produc- 
tive capacity  has  been  proven  so  much  stronger 
than  military  power  that  we  believe  the  last 
grand  scale  attempt  to  practice  the  latter 
method  of  attaining  wealth  or  power  has  been 
made.  In  this  great  war  it  was  clearly  proven 
that  not  what  ive  have  but  ivhat  ive  can  do  is 
the  more  important.  It  clearly  follows,  then, 
that  the  workers  we  have  are  not  so  important 
as  our  ability  to  train  others ;  again  illustrating 
the  fact  that  our  productive  capacity  is  more 
important  than  our  possessions. 

That  the  methods  which  I  have  here  so  in- 
adequately described  are  of  broad  applicability, 
has  been  proven  by  the  fact  that  they  have  re- 
ceived enthusiastic  support  of  the  workmen 
wherever  they  have  been  tried.  As  previously 
said,  it  is  undoubtedly  true  that  the  *' efficiency'' 
methods  which  have  been  so  much  in  vogue  for 
the  past  twenty  years  in  this  country,  have 
failed  to  produce  what  was  expected  of  them. 
The  reason  seems  to  be  that  we  have  to  a  large 
extent  ignored  the  human  factor  and  failed  to 


90  ORGANIZING  FOR  WORK 

take  advantage  of  the  ability  and  desire  of  the 
ordinary  man  to  learn  and  to  improve  his  posi- 
tion. Moreover,  these  ** efficiency''  methods 
have  been  applied  in  a  manner  that  was  highly 
autocratic.  This  alone  would  be  sufficient  to 
condemn  them,  even  if  they  had  been  highly 
effective,  which  they  have  not. 

In  this  connection  it  has  been  clearly  proven 
that  better  results  can  be  accomplished  if  the 
man  who  instructs  the  workman  also  inspects 
the  work  and  not  only  shows  the  workman 
where  he  is  wrong,  but  how  to  correct  his 
errors,  than  if  the  inspection  is  left  to  a  com- 
paratively ignorant  man,  who  is  governed  by 
rules.  The  attempt  to  combine  instruction  and 
inspection  in  one  man  has  met  with  the  highest 
approval  among  the  workmen,  with  the  result 
of  better  work  and  less  loss.  This  method  is 
contrary  to  the  usual  practice,  inasmuch  as 
instruction  and  inspection  have  been  considered 
two  functions,  the  former  requiring  an  expert 
and  the  latter  a  much  less  capable,  and  hence 
cheaper,  man.  We  are  satisfied  that  this 
analysis  is  defective;  the  inspector  who  can 
show  the  workman  how  to  avoid  his  errors  is 
usually  worth  far  more  than  the  extra  com- 
pensation required  to  secure  his  services.  It 
may  be  impossible  to  measure  the  exact 
material  value  of  these  methods  individually, 


DEMOCRACY  IN  THE  SHOP  91 

but  the  total  effect  is  reflected  in  an  improved 
and  increased  product  at  a  lower  cost. 

Inasmuch  as  there  is  no  necessity  for  any 
coercion  in  applying  these  methods  when  we 
have  an  instructor  who  is  capable  of  being  a 
leader,  we  rapidly  attain  a  high  degree  of 
democracy  in  the  shop.  On  the  other  hand,  if 
the  instructor  chosen  fails  to  measure  up  to  the 
standard  of  leadership,  it  is  never  long  before 
his  shortcomings  are  exposed,  for  through  the 
medium  of  our  charts  available  facts  are  easily 
comprehended  by  all.  By  these  methods  we 
automatically  select  as  leader  the  man  who 
knows  what  to  do  and  how  to  do  it,  and  when 
he  has  been  found  and  installed,  progress  is 
rapid  and  sure. 


DEMOCEACY  IN  MANAGEMENT 

(Machine  Records) 

Having  demonstrated  by  experience  that  it  is 
possible  to  run  a  shop  democratically  and  that 
the  idea  of  giving  every  man  a  fair  show  and 
rewarding  him  accordingly  is  not  really  absurd, 
we  naturally  ask  how  far  upward  into  the 
management  we  can  carry  this  principle.  The 
world  still  believes  that  authority  must  be  con- 
ferred, and  has  a  very  faint  conception  of  what 
we  mean  by  intrinsic  authority,  or  the  authority 
that  comes  to  a  man  who  knows  what  to  do  and 
how  to  do  it,  and  who  is  not  so  much  concerned 
with  being  followed  as  on  getting  ahead. 

The  problem  of  the  manager  is  much  wider 
than  that  of  the  superintendent  or  the  foreman, 
for  he  must  see  that  there  is  work  to  be  done, 
materials  to  work  with  and  men  to  do  the  work, 
besides  numerous  other  things  which  are  not 
within  the  sphere  of  the  foreman. 

The  object  of  a  shop  being  to  produce  goods, 
the  first  problem  which  comes  to  him  is  to  find 

92 


DEMOCRACY  IN  MANAGEMENT    93 

out  to  what  extent  the  shop  is  performing  the 
function  for  which  it  was  built.  In  other  words, 
are  the  various  producing  machines  operating 
all  the  time  and  if  not,  why  not  I  An  oppor- 
tunity for  our  chart  comes  in  again,  and  the 
reason  why  a  machine  did  not  work  at  all  is 
indicated  by  symbols.  Chart  No.  9  is  one  of 
this  type.  The  thin  lines  represent  the  number 
of  hours  each  day  a  machine  was  operated; 
the  heavy  line  represents  the  total  number  of 
hours  it  operated  during  the  week.  The  sym- 
bols indicate  the  causes  of  idleness ;  some  were 
due  to  lack  of  work;  some  to  lack  of  material; 
some  to  lack  of  men;  some  on  account  of  re- 
pairs, etc.  If  we  have  not  work  enough  to  keep 
the  shop  busy,  we  must  look  for  the  cause  by 
asking:  Is  there  work  to  be  had?  Is  our  price 
low  enough?  Is  our  quality  good  enough?  The 
answer  to  the  first  two  must  be  determined  by 
the  manager  in  connection  with  the  sales  de- 
partment. The  third  by  the  manager  in  connec- 
tion w^th  the  shop  superintendent.  If  our  idle- 
ness is  due  to  lack  of  material,  the  question 
must  be  taken  up  with  the  buyer  and  store- 
keeper. If  it  is  due  to  lack  of  help,  the  labor 
policy  and  the  wage  system  must  be  studied. 
If  the  idleness  is  due  to  repairs  on  machinery, 
the  question  is  one  for  consideration  by  the 
superintendent   and   the   maintenance   depart- 


94  ORGANIZING  FOR  WORK 

ment.  In  every  case  the  responsibility  for  a 
condition  is  traced  directly  to  its  source.  More- 
over, as  it  is  entirely  possible  to  determine  the 
expense  incurred  by  idleness,  such  expense  may 
be  allocated  directly  to  the  responsible  parties. 
Inasmuch  as  a  real  management  system  is 
simply  a  mechanism  for  keeping  all  concerned 
fully  advised  as  to  the  needs  of  a  shop,  and  for 
showing  continuously  how  these  needs  have 
been  supplied,  the  comparison  between  what 
each  man  from  the  top  to  the  bottom  did  and 
what  he  should  have  done  is  easily  made. 
Under  a  system  of  management  based  on  our 
charts,  it  soon  becomes  evident  to  all,  who  is 
performing  his  function  properly  and  who  is 
not.  A  man  who  is  not  making  a  success,  knows 
about  it  as  soon  as  anybody  else,  and  has  the 
opportunity  of  doing  better  if  he  can.  If  he  is 
not  making  good,  it  is  very  seldom  that  he  has 
any  desire  to  hold  on  to  the  job  and  advertise 
his  incompetency  to  his  fellows.  Moreover, 
it  takes  but  a  short  experience  with  these 
methods  to  convince  a  man  that  his  record  will 
discredit  him  very  much  if  he  uses  opinions 
instead  of  facts  in  determining  his  methods 
and  policies.  We  are  thus  able  to  apply  the 
same  standards  to  those  in  authority  that  we 
apply  to  the  workmen.  In  other  Avords  we  ask 
of  all — how  well  did  he  perform  his  task?     A 


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DEMOCRACY  IN  MANAGEMENT    95 

short  line  on  a  chart  points  unfailingly  to  him 
who  needs  most  help. 

The  Machine  Record  charts  just  referred  to 
have  to  do  with,  what  proportion  of  the  plant 
was  operated.  The  Man  Record  charts  indicate 
the  effectiveness  with  which  the  machines  were 
operated  during  the  time  they  were  operated. 
For  instance,  if  a  machine  were  operated  only 
one-half  the  time,  and  with  only  one-half  of  its 
effectiveness  during  that  time,  we  should  get 
out  of  the  machine  only  one-quarter  of  its  pos- 
sible use.  A  combination,  therefore,  of  these 
two  sets  of  charts,  which  gives  a  measure  of  the 
manager,  is  a  basis  of  our  faith  in  him,  and  a 
measure  of  the  financial  credit  that  may  be  ex- 
tended to  him  as  a  producer.  A  little  con- 
sideration will  show  that  such  a  record  is  a  far 
safer  basis  for  financial  credit  in  many  cases 
than  physical  property,  and  affords  a  means 
of  financing  ability  or  productive  capacity  as 
well  as  ownership.  It  is  not  to  be  concluded 
that  this  subject  is  being  presented  in  its  final 
and  complete  form,  but  it  is  claimed  that  enough 
has  been  established  to  enable  us  to  make  an 
irdelligent  start  in  the  operation  of  the  new 
credit  system,  which  the  Federal  Government 
was  obliged  to  adopt  without  any  guide. 

Further,  it  is  safe  to  say  that  if  such  records 
as  the  ones  just  described  had  been  available 


96  ORGANIZING  FOR  WORK 

for  the  prominent  business  men  of  the  country 
at  the  breaking  out  of  the  war,  we  should  have 
been  saved  much  time,  and  the  expenditure 
of  many  millions  of  dollars. 

The  fact  that  such  a  system  is  applicable  to 
the  arts  of  peace  as  well  as  those  of  war;  that 
it  will  pay  for  itself  over  and  over  again  while 
it  is  being  installed;  and  that  it  will  enable 
us  to  value  men  according  to  service  they  can 
render,  would  seem  to  be  sufficient  reason  why 
we  should  lose  no  more  time  than  is  necessary 
in  taking  steps  to  extend  it  throughout  the 
nation.  The  fact  that  it  is  not  an  efficiency 
system  as  the  term  is  generally  understood, 
nor  a  system  of  scientific  management  as  that 
term  is  understood,  but  simply  one  which  en- 
ables us  to  use  all  the  knowledge  available  and 
in  a  manner  which  is  intelligible  to  the  most 
ordinary  w^orkman  as  well  as  to  the  best  edu- 
cated executive,  is  responsible  for  the  enthusi- 
asm with  which  it  has  been  received  by  the 
workmen  as  well  as  the  executive.  It  is  de- 
signed to  enable  all  of  us  to  use  all  the  knowl- 
edge we  have  to  the  best  advantage,  and  does 
not  in  the  slightest  interfere  with,  but  rather 
supplements  and  supports,  the  work  of  those 
w^hose  problem  is  to  acquire  additional  knowl- 
edge. 

In  the  preceding  chapters  we  have  given  our 


DEMOCRACY  IN  MANAGEMENT    97 

^T.ew  of  the  economic  situation;  of  the  forces 
that  were  affecting  it,  and  whither  it  was  tend- 
ing. We  have  also  shown  our  mechanism  for 
making  effective  use  of  all  the  knowledge  avail- 
able. We  also  see  that  with  increase  in  the 
amount  and  availability  of  knowledge  the  more 
certain  our  course  of  action  is  outlined,  and  the 
less  we  need  to  use  opinion  or  judgment. 

Moreover,  our  record  charts  invariably  indi- 
cate the  capable  men,  and  not  only  give  us  an 
indication  of  how  to  choose  our  leaders,  but  a 
continual  measure  of  the  effectiveness  of  their 
leadership  after  they  are  chosen.  We  thus 
eliminate,  to  a  large  extent  at  least,  opinion  or 
judgment  in  the  selection  of  leaders,  and  in  so 
far  do  away  with  autocratic  methods  from 
whatever  source. 


XI 
*^THE  RELIGION  OF  DEMOCRACY" 

For  over  a  thousand  years  the  history  of  the 
world  has  been  made  by  two  great  forces — the 
church  and  the  state — the  church  basing  its 
power  on  idealism  and  moral  forces,  the  state 
depending  almost  entirely  upon  military  power. 
At  times  these  two  forces  have  seemed  for  a 
while  to  co-operate,  and  then  to  become  antago- 
nistic. Today  they  are  absolutely  distinct, 
working  in  different  fields,  with  but  little  ground 
in  common,  and  a  rival  claims  the  middle  of  the 
stage,  for  during  the  last  century  there  has 
come  into  the  world  another  force,  which  has 
concerned  itself  but  little  with  our  religious 
activities,  and  interested  itself  in  our  political 
activities  only  in  so  far  as  it  could  make  the 
political  forces  serve  its  ends.  I  speak  of  the 
modern  business  system,  based  on  the  tre- 
mendously increased  productive  capacity  of  the 
race  due  to  the  advance  of  the  arts  and  sciences. 
The  rapid  expansion  of  this  new  power  has 
thrown  all  our  economic  mechanism  out  of  gear, 
and  because  it  failed  to  maintain  a  social  pur- 
pose, which  is  common  to  both  of  the  other 

98 


''THE  RELIGION  OF  DEMOCRACY"       99 

forces,  produces  cross-currents  and  antago- 
nisms in  the  community  which  are  extremely 
detrimental  to  society  as  a  whole. 

One  hundred  years  ago,  each  family — cer- 
tainly each  community — produced  nearly  every- 
thing needed  for  the  simple  life  then  led. 

The  village  blacksmith  and  the  local  mill 
served  the  community,  which  existed  substan- 
tially as  a  self-contained  unit. 

With  the  growth  of  the  transportation  sys- 
tem and  grand  scale  production  many  of  the 
functions  of  the  local  artizans  were  taken  over 
by  the  factory,  just  as  the  flour  mills  of 
Minneapolis  supplanted  the  local  mills,  which 
went  out  of  existence. 

In  the  same  manner  other  large  centralized 
industries  by  superior  service  drove  out  of  ex- 
istence small  local  industries.  By  reason  of 
improved  machinery  and  a  better  technology 
the  centralized  industries  w^ere  able  to  render 
this  superior  service,  at  the  same  time  securing 
large  profits  for  themselves.  Unfortunately  for 
the  country  at  large,  those  who  later  came  into 
control  of  these  industries  did  not  see  that  the 
logical  basis  of  their  profits  was  service.  When, 
therefore,  the  community  as  a  whole  had 
come  to  depend  upon  them  exclusively,  they 
realized  their  opportunity  for  larger  profits 
still,  and  so  changed  their  methods  as  to  give 


ew^'=V'2L 


100  ORGANIZING  FOR  WORK 

profits  first  place,  oftentimes  ignoring  almost 
entirely  the  subject  of  service.  It  is  this  change 
of  object  in  the  business  and  industrial  system, 
which  took  place  about  the  close  of  the  nine- 
teenth century,  that  is  the  source  of  much  of 
the  woe  that  has  recently  come  upon  the  world. 
Unless  the  industrial  and  business  system  can 
rapidly  recover  a  sense  of  service  and  grant 
it  the  first  place,  it  is  hard  to  see  what  the  next 
few  years  may  bring  forth. 

The  great  war  through  which  we  have  just 
passed  has  done  away  with  political  autocracy, 
apparently  forever,  but  it  has  done  nothing 
whatever  in  this  country  to  modify  the  auto- 
cratic methods  of  the  business  system,  which 
is  a  law  unto  itself  and  which  now  accepts  no 
definite  social  responsibility.  This  force  is 
controlled  by  and  operated  in  the  interest  of 
ownership,  with,  in  many  cases,  but  little  con- 
sideration for  the  interests  of  those  upon  whose 
labor  it  depends,  or  for  that  of  the  community. 
We  should  not  be  surprised,  therefore,  that  the 
workman  who  is  most  directly  affected  by  this 
policy  is  demanding  a  larger  part  in  the  control 
of  industry,  especially  as  the  war  has  taught 
him,  in  common  with  most  of  us,  that  the  method 
of  operating  an  industry  is  more  important  to 
the  community  than  the  particular  o\vnership 
of  that  industry.    The  result  of  this  knowledge 


*'THE  RELIGION  OF  DEMOCRACY"     101 

is  that  the  workers  throughout  the  world  are 
striving  everywhere  to  seize  the  reins  of  power. 
Unfortunately  for  the  world  at  large,  these 
workers  as  a  rule  have  no  clearer  conception  of 
the  social  responsibility  than  those  already  in 
control.  Moreover,  having  had  no  experience 
in  operating  grand  scale  industry  and  business, 
it  is  more  than  likely  that  their  attempt  to  do 
so  will  result  disastrously  to  the  community. 
The  industrial  system  as  a  whole  is  thus  threat- 
ened with  a  change  of  control  which  we  can 
scarcely  contemplate  w^tli  equanimity.  We 
naturally  ask  if  there  is  any  possible  relief  from 
the  confusion  with  which  we  are  threatened. 
We  think  there  is,  but  not  by  any  of  the  methods 
generally  advocated  by  ^'intellectuals''  who  are 
not  closely  in  touch  with  the  moving  forces. 

One  class  believes  that  the  answer  comes  in 
government  ownership  and  government  control 
of  industries.  The  experience  of  the  world  so 
far  does  not,  however,  give  much  encourage- 
ment along  these  lines,  for  in  some  quarters 
where  public  utilities  have  to  a  large  extent 
been  run  by  the  government,  it  is  frankly  ad- 
mitted that  the  government  is  being  run  by  the 
business  system,  which  leaves  us  just  where  we 
were,  unless  we  can  get  a  social  purpose  into 
that  system,  in  which  case  the  need  for  govern- 
ment ownership  would  disappear.     Is  such  a 


102  ORGANIZING  FOR  WORK 

thing  possible?  Unless  it  can  be  shown  that  a 
business  system  which  has  a  social  purpose  is 
distinctly  more  beneficial  to  those  who  control 
than  one  which  has  not  a  social  purpose,  I 
frankly  confess  that  there  does  not  seem  to  be 
any  permanent  answer  in  sight.  On  the  other 
hand,  if  it  can  be  shown  conclusively  that  a 
business  system  operated  by  democratic 
methods  (and  the  test  of  such  a  system  is  that 
it  acts  without  coercion  and  offers  each  man 
the  full  reward  of  his  labor)  is  more  beneficial 
to  those  who  lead  than  the  present  autocratic 
system,  we  have  a  basis  on  which  to  build  a 
modern  economic  state,  and  one  which  we  can 
establish  without  a  revolution,  or  even  a  serious 
jar  to  our  present  industrial  and  business  sys- 
tem. In  fact,  so  far  as  I  have  been  able  to 
put  into  operation  the  methods  I  am  advocating, 
we  have  very  materially  reduced  the  friction 
and  inequalities  of  the  present  methods  much 
to  the  benefit  of  both  employer  and  employee. 

In  1908  I  wrote  a  paper  for  the  American 
Society  of  Mechanical  Engineers,  on  ^'training 
workmen''  in  which  I  used  the  following  ex- 
pression: ^'The  general  policy  of  the  past  has 
been  to  drive;  but  the  era  of  force  must  give 
way  to  that  of  knowledge,  and  the  policy  of  the 
future  will  be  to  teach  and  to  lead,  to  the  ad- 
vantage of  all  concerned.'' 


''THE  RELIGION  OF  DEMOCRACY"     103 

This  sentiment  met  with  much  hearty  sup- 
port, but  inasmuch  as  no  mechanism  had  at 
that  time  come  into  general  use  for  operating 
industry  in  that  manner,  the  sentiment  re- 
mained for  most  people  simply  a  fine  sentiment. 
At  that  time  the  organization  of  which  I  am  the 
head  had  already  made  some  advance  in  the 
technology  of  such  a  system  of  management, 
and  since  that  time  we  have  continued  to  de- 
velop our  methods  along  the  same  lines,  as 
sho^\^l  in  the  previous  chapters  of  the  book. 

Throughout  this  little  book  we  have  at- 
tempted to  make  clear  that  those  who  know 
what  to  do  and  how  to  do  it  can  most  profitably 
be  employed  in  teaching  and  training  others. 
In  other  words,  that  they  can  earn  their  great- 
est reward  by  rendering  ser\'ice  to  their  fellows 
as  well  as  to  their  employers.  It  has  only  been 
recently  that  we  have  been  able  to  get  owners 
and  managers  interested  in  this  policy,  for  all 
the  cost  systems  of  the  past  have  recorded  such 
teachers  as  non-producers  and  hence  an  ex- 
pense that  should  not  be  allowed.  Xow,  how- 
ever, with  a  proper  cost-keeping  system  sup- 
plemented by  a  man-record  chart  system,  we  see 
that  they  are  really  our  most  effective  pro- 
ducers. 

We  have  attempted  in  this  book  to  show  an 
example  of  the  mechanism  by  which  we  have 


104  ORGANIZING  FOR  WORK 

put  into  operation  our  methods,  and  some  of 
the  results  that  have  been  obtained  by  them,  the 
most  important  of  which  is  that  under  such  a 
system  no  ^' blind  guides''  can  permanently 
hold  positions  of  authority,  and  that  leadership 
automatically  gravitates  to  those  who  know 
what  to  do  and  how  to  do  it.  Moreover,  we  have 
yet  to  find  a  single  place  where  these  methods 
are  not  applicable,  and  where  they  have  not 
produced  better  results  than  the  old  autocratic 
system.  Moreover,  they  produce  harmony  be- 
tween employer  and  employee  and  are  welcomed 
by  both.  In  other  words,  ive  have  proved  in 
many  places  that  the  doctrine  of  service  which 
has  been  preached  in  the  churches  as  religion 
is  not  only  good  economics  and  eminently  prac- 
tical, but  because  of  the  increased  production 
of  goods  obtained  by  it,  promises  to  lead  us 
safely  through  the  maze  of  confusion  into  which 
we  seem  to  be  headed,  and  to  give  us  that  in- 
dustrial democracy  which  alone  can  afford  a 
basis  for  industrial  peace. 

This  doctrine  has  been  preached  in  the 
churches  for  nearly  two  thousand  years,  and 
for  a  while  it  seemed  as  if  the  Catholic  Church 
of  the  middle  ages  w^ould  make  it  the  controlling 
factor  in  the  world ;  but  the  breaking  up  of  the 
Church  of  the  middle  ages  into  sects,  and  the 
advance  of  that  intellectualism  which  placed 


'*THE  RELIGION  OP  DEMOCRACY"     105 

more  importance  upon  words  and  dogma  than 
upon  deeds,  gave  a  setback  to  the  idea  which 
has  lasted  for  centuries.  Now,  when  a  great 
catastrophe  has  made  us  aware  of  the  futility 
of  such  methods,  we  are  beginning  to  realize 
that  the  present  business  system  needs  only 
the  simple  methods  of  the  Salvation  Army  to 
restore  it  to  health.  It  is  absolutely  sound  at 
the  bottom. 

The  attempt  to  run  the  world  by  words  and 
phrases  for  the  bcaneiit  of  those  who  had  the 
power  to  assemble  those  words  and  phrases  in- 
volved us  in  a  great  war,  and  the  continued 
application  of  these  methods  seems  to  be  lead- 
ing us  into  deeper  and  deeper  economic  con- 
fusion. We  are  therefore  compelled  to  recog- 
nize that  the  methods  of  the  past  are  no  longer 
possible,  and  that  the  methods  of  the  future 
must  be  simpler  and  more  direct. 

It  should  be  perfectly  e\'ident  that  mth  the 
increasing  complexity  of  the  modern  business 
system  (on  which  modern  civilization  depends) 
successful  operation  can  be  attained  only  by 
following  the  lead  of  those  who  understand 
practically  the  controlling  forces,  and  are  will- 
ing to  recognize  their  social  responsibility  in 
operating  them. 

Any  attempt  to  operate  the  modern  business 
system  by  people  who  do  not  understand  the 


106  ORGANIZING  FOR  WORK 

driving  forces  is  sure  to  reduce  its  effective- 
ness, and  any  attempt  to  operate  it  in  the  in- 
terest of  a  class  is  not  much  longer  possible. 

For  instance,  under  present  conditions  the 
attempt  to  drive  the  workman  to  do  that  which 
he  does  not  understand  results  in  failure,  even 
if  he  is  willing  to  be  driven,  which  he  no  longer 
is;  for  he  has  learned  that  real  democracy  is 
something  more  than  the  privilege  of  express- 
ing an  opinion.  We  are  thus  forced  into  the 
new  economic  condition,  and,  whether  we  like  it 
or  not,  will  soon  realize  that  only  those  u'Jio 
know  ivhat  to  do  and  lioiv  to  do  it  will  have  a  suf- 
ficient following  to  make  their  efforts  worth 
while.  In  other  words,  the  conditions  under 
which  the  great  industrial  and  business  sys- 
tem must  operate  to  keep  our  complicated  sys- 
tem of  modern  civilization  going  successfully, 
can  be  directed  only  by  real  leaders — men  who 
understand  the  operation  of  the  moving  forces, 
and  whose  prime  object  is  to  render  such  service 
as  the  community  needs. 

In  order  to  secure  such  leaders  they  must 
have  full  reward  for  the  service  they  render. 
This  rules  out  the  dollar-a-year  man,  whose 
qualifications  too  often  were  not  that  he  knew 
how  to  do  the  job,  but  that  he  was  patriotic  and 
could  afford  to  give  his  services  for  nothing. 
In  spite  of  such  a  crude  way  of  selecting  men 


''THE  RELIGION  OF  DEMOCRACY"    107 

to  handle  problems  vital  to  the  life  of  the 
nation,  many  did  good  work  during  the  war. 

The  laws  of  the  United  States,  however,  for- 
bid a  man  to  w^ork  for  the  government  for 
nothing,  and  both  those  who  served  at  a  dollar 
a  year,  and  those  who  accepted  that  service, 
\dolated  the  spirit  of  the  law,  which  was  aimed 
to  sustain  the  democratic  practice  of  reward- 
ing a  man  according  to  the  service  he  rendered. 
Any  other  practice  is  undemocratic. 

In  1847,  Mr.  Lincoln  wrote:  **To  secure  to 
each  laborer  the  whole  product  of  his  labor,  or 
as  nearly  as  possible,  is  a  worthy  object  of  any 
good  government.  But  then  the  question  arises, 
how  can  a  government  best  effect  this!  *  *  * 
Upon  this  the  habits  of  our  whole  species  fall 
into  three  great  classes — useful  labor,  useless 
labor,  and  idleness.  Of  these,  the  first  only  is 
meritorious,  and  to  it  all  the  products  of  labor 
rightfully  belong ;  but  the  two  latter,  while  they 
exist-,  are  hea\y  pensioners  upon  the  first,  rob- 
bing it  of  a  large  portion  of  its  just  rights. 
The  only  remedy  for  this  is  to,  so  far  as  pos- 
sible, drive  useless  labor  and  idleness  out  of 
existence.'' 

Attempts  are  always  being  made  to  eliminate 
the  idleness  of  workmen  and  useless  labor  by 
the  refusal  of  compensation.  Unfortunately, 
however,  there  has  been  no  organized  attempt 


108  ORGANIZING  FOR  WORK 

as  yet  to  force  capital  to  be  useful  by  refusing 
compensation  to  idle  capital,  or  to  that  expended 
uselessly.  Capital  which  is  expended  in  such 
a  manner  as  to  be  non-productive,  and  capital 
which  is  not  used,  can  receive  interest  only  by 
obtaining  the  same  from  capital  which  was  pro- 
ductive or  from  the  efforts  of  workmen,  in 
either  of  which  cases  it  gets  a  reward  which 
it  did  not  earn,  and  which  necessarily  comes 
from  capital  or  labor  which  did  earn  it. 

Reward  according  to  service  rendered  is  the 
only  foundation  on  which  our  industrial  and 
business  system  can  permanently  stand.  It  is 
a  violation  of  this  principle  which  has  been  made 
the  occasion  for  socialism,  communism,  and 
Bolshevism.  All  we  need  to  defeat  these 
*4sms''  is  to  re-establish  our  industrial  and 
business  system  firmly  on  the  principles  advo- 
cated by  Abraham  Lincoln  in  1847,  and  we  shall 
establish  an  economic  democracy  that  is 
stronger  than  any  autocracy. 

Moreover,  it  conforms  absolutely  to  the  teach- 
ings of  all  the  churches,  for  Christ,  who  was  the 
first  to  understand  tjie  commanding  power  of 
service,  thus  stands  revealed  as  the  first  great 
Economist,  for  economic  democracy  is  simply 
applied  Christianity.  This  was  also  clearly 
understood  by  the  great  leaders  of  the  Church 
of  the  middle  ages,  whose  failure  to  establish  it 


''THE  RELIGION  OF  DEMOCRACY"     109 

as  a  general  practice  was  largely  due  to  the 
rise  of  an  intellectualism  which  disdained  prac- 
ticality. 

Now,  however,  when  a  great  catastrophe  has 
shown  us  the  error  of  our  ways,  and  convinced 
us  that  the  world  is  controlled  by  deeds  rather 
than  words,  we  see  the  road  to  Universal  Peace 
only  through  the  change  of  Christianity  from  a 
weekly  intellectual  diversion  to  a  daily  practical 
reality. 


INDEX 


Ability  to  Do  Things,  41,  42, 

64,  65,  84 
Accountants,    18,    19,    32,    33, 

38 
Activities   (Charting),  17,  74, 

78,   79,   80,   81,   82,   83,   84, 

85,   86,   87,   88,   91,   92,  93, 

94,  95,  97 
Allies,  iii 

America,  14,  23,  32 
American  Workmen,  6,  13,  44, 

106 
Authority,  92,  103 
Autocracy,  8,  176 

Bankers,  7,  8,  53,  54,  55,  56, 

69 
Bolshevism,  7,  8,  108 
Business  Men,  5,  8,  9,  24,  62 
Business  System,  iv,  3,  5,  13, 

15,    17,   24,   53,   67,   70,   72, 

76,  81,  85,  90,  98,  99,   100, 

101,  102,   105,   108 

Capital,  12,  26,  108 
Carnegie,  Andrew,  55 
Church,  70,  98,   104,   108 
Civilization,  3,  11,  12,  86 
Coal  Administration,  iii,  10 
Cost  Keeping,  25,  26,  28,  29, 


30,   31,   32,   35,   37,  38,  39, 

42,  43,  44,  48,  49,  55,   103 

Cost  of  New  Employees,  88, 

89 
Credit,  84 
Credit  System,  52,  53,  54,  55, 

57,  58,  59,  84,  85,  95 
Crozier   (General),  78,  81 

Democracy  in    Industry,    65, 

74,  89  ' 

Democracy  in"  Management, 

92 

Democracy  in  Politics,  v 

Democracy  in  Production,  74 

Democracy  in  the  Shop,  84 
Dollar-a-Year  Service,  18,  20, 

106,  107 

Economic   Conditions,    12,   41 
Economics  of   Democracy,   60 
Economic  Force,  iii 
Economic   System,   v,   57,   60, 

74,  75,  96,  97 
Economists,  41,  60,  70 
Efficiency    and    Idleness,    23, 

24,  25,  33,  47,  48,  49,  64 
Efficiency   Campaign,    23,    25, 

89 
Efficiency  Methods,  89,  90,  96 


111 


112 


INDEX 


Emergency  Fleet  Corporation, 

8,  9,  12,  81 
England,  67,  68 
Europe,  v,  6,   10,   11,   12,   14, 

15,  71,  76,  77 
Expense   of   Idleness,   26,    33, 

44,  47,  48,  50,  51 


13,    17,  20,  21,   22,  41,  42, 

66,  68,  69,  76,  85,  108 
Industrial  Unrest,  4,  5,  6,  7, 

16 
Inspection,  90 

Kaiser,  8 


Federal    Government,    8,    10,  Labor,  26,  108 

24,  54,  58,  95  Labor  Unions,  11,  26 
Federal       Reserve       Banking 

System,  52  Machine  Records,  45,  92,  93, 

Federal     Trade     Commission,  94,  95 

10  Managers,  50,  61,  64,  90,  92, 

Financial  Credit,  84,  85,  95  94 

Financing,    8,    9,    52,    53,    54,  Man  Records,  84,  85,  86,  87, 

55,  56,  58,  70,  84  88,  91,  94,  95 

Food  Administration,  iii  Manufacturers,  28,  29,  30,  31, 

Ford,  Henry,  55  32,   33,   34,   35,   37,  38,  39, 

55,  86,  87 

Germany,  iii,  61,  65,  66,  67,  Militarism,  7,  66 

68,  69,  71,  74,  75  Military  Autocracy,  66,  68 

Government  Financing,  8  Military  Methods,  41,  65,  66, 


Government  Ownership,  101 
Great  Britain,  11 


69,  74,  75,  98 
Munitions,   62,   64 


Harvesting  Dollars,  24 
Human  Factor,  89,  90 

Idleness,    23,    25,   26,    27,   34, 

37,  43,  44,   45,  47,   48,  49, 

92,  93 
Industrial    Engineer,    16,    20,       Political  Autocracy,  69,  100 

21,  38,  39  Political   System,   iii,  41,  69, 

Industrial    Management,    72,  98 

73  Preparedness,  60,  61,  62,  65, 

Industrial   System,    iv,   3,   8,  69,  78 


Opinions  vs.  Facts,  20 
Ordnance  Department,  78,  79, 
80 

Parting  of  the  Ways,  3,  6,  14 

Pershing    (General),  84 


INDEX 


113 


Privilege,  65,  68,  70,  71,  72 
Production,  20,  28,  54,  56,  57, 

63,  64,  76,  79,  80 
Production  and  Costs,  28 
Productive   Capacity,   54,    55, 

57,   62,   63,   64,   77,  95,  99, 

100 
Profits,  5,   7,    12,   14,   17,   33, 

44,  54,  99,   100 
Progress   Charts,    17,    74,    78, 

79,  80,  81,  82 
Public  Money,  50 
Public    Service    Corporations, 

9,  10,  12 

Radicals,  iv,  6 
Religion,  98,  104,  108,  109 
Religion  of  Democracy,  98 
Russia,  6,  7,  11,  71,  72 


99,  100,     103,     105,     106, 
108 

Schneider   (Dean),  79,  80,  81 
Sherman  Anti-Trust  Law,  4 
Shipping  Board,   81 
Social  Preparedness,  60,  65 
Social       Responsibility,       15, 

100,  101,   102,   105 

Soviet   System,   iii,   6,   7,    11, 

15,  71,  72 
Statisticians,  18,  19 

Theories,  32,  43,  57 
Training    Workmen,    86,    87, 

88,  89,  90,  91,  102,  103 
Trusts   and    Combinations,    4 

Value  of  Industrial  Property, 
41,  42 


Service,  iv,  3,  5,  8,  10,  12,  13, 
14,   17,   18,  22,   67,  68,  96, 


Wall  Street,  52,  53 
War  Labor  Board,  iii 


from  which  it  was  borrowed. 


THE  LimtAKt 
SITY  OF  CALIFORMJJ 

LOS  ANGELES         Library 
<Jraduate  School  of  Business  Administration 
University  of  California 
Los  Angeles  24,  California 


A     000  362  691     8 


Univ( 

So 

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